EP021 - CEO and Founder of Your Location Lubrication (YLL), Zach Zeller

http://www.vehicle2.getspiffy.com

Episode 21 is an interview with Zach Zeller, CEO and Founder of Your Location Lubrication (YLL); recorded on Thursday, November 7th, 2019. Scot and Zach discuss a variety of topics, including...

• How Zach got his start in the industry with YLL
• YLL’s last 10 years of growth, driven by their fleet-focused approach
• The creation of YLL’s proprietary high volume oil change system
• Spiffy and YLL joining forces for Fleet Management as a Service
• Zach transitioning into his new position as SVP of Fleet Business Development at Spiffy
• Zach’s thoughts on the Vehicle 2.0 framework from a fleet maintenance perspective

If you enjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.

This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.

 

Transcript:

Scot:    Welcome to the vehicle 2.0 Podcast. This is episode 21 and it's being recorded November 7th, 2019 welcome back to vehicle 2.0 listeners. We took a little bit of a fall break there on the podcast and are excited to be back with you here today. It's 50 we recently announced that we are merging with your location lubrication, also known as YLL. So we took this opportunity to have the CEO and founder Zack Zeller on the podcast. Zach has been working in the industry for over 10 years, so we're really excited to get his insights about the automotive industry and his experience. Welcome on the show, Zach.

Zach:    Thanks Scot.

Scot:    And I think this is your first podcast ever.

Zach:    So it is.

Scot:    So we're excited to land the big first interview here on vehicle 2.0 let's start off by you and I have had the opportunity to spend a lot of time together and I've got to hear your story, but listeners haven't. So tell us how you got into the automotive space.

Zach:    Yeah, so, you know, I got into automotive, the mobile onsite oil change space by having a bad experience at a, at a brick and mortar business. So, you know, had to go get the oil changed, you know, trying to upsell and, and do all these services that I didn't think were necessary. You know, it was cold, snowy, and so, you know, after my experience, bad experience yeah, I needed to, the thought there had to be a better way to do oil changes, right. There had to be somebody that could come to my house and provide this service, you know, while I'm at, at that, at home or at work. And so I started looking around and this was about 10 years ago and couldn't find, couldn't find that service. So, you know, with some research and idea, I thought, you know, I'm, I'm going to go out there and do this myself.

Zach:    So jumped on Craigslist, went out and bought an old 2000, two 40 Econoline van and it put some oil in it and filters and started going door to door and knocking on people's doors to, you know, offer this service. Quickly realized that doing it one at a time, I wasn't making any money. Right? It's pretty quick. So, you know, I determine that, you know, for, for, for a while L that you know, our opportunity was in, in the fleet business and where could I go to find large fleets? And that led me to Orlando, one of the largest rental car company locations in the U S so moved down to Orlando and start knocking on the door of the rental car companies. And that was kind of my first end. So, you know, start off by doing four, five, six, 10 oil changes a day. And you know, I could start seeing the opportunities there and seeing that there was at the airports, right. Large fleets, large concentration of cars. And that's kinda how I got started. So, you know, by, by doing the one and two a day to five to 10 a day to, you know, now we're doing, you know, several hundred a day at the, at large airport locations.

Scot:    Yeah. Awesome. and then one of the things that's pretty interesting is, so first of all, congratulations. Most businesses don't make it like five years. You've made it 10 years. I'm very successful. That's awesome. One of the things that we got excited about is you guys can handle, you know, something like four to six oil changes somewhat simultaneously. Talk a little bit about, so you've developed some proprietary technology, we don't want to go too far into that, but you know, how did, how did you realize you needed to be able to do that? You know, that many oil changes simultaneously did to really capture the high volumes.

Zach:    Yeah. So, you know, it started you know, I w the day I got a phone call that there was about 200 oil changes at, at the airport location there in Orlando. And I went out there by myself. It was just me and one van. And, and you know, I had thought I had developed a system that to work, to be able to handle that. And what I realized was about after 10 cars that the system I had developed couldn't handle high volume. You know, I mean it was good for the five, 10 cars and, and it just wasn't working right. So it was really that I, I realized that, you know, to service 200 cars to do it efficiently, to do it. So the rental car companies could put those cars back on rent that we need to develop a system that could be high volume, right. That that could do four, six, 10 cars an hour. You know, so those cars can get back on the road. And so that's where we, we started trying all these different systems. We went to different manufacturers and trying different ideas and you know, over the last 10 years, we think that we finally found the right system that allows us to, to do what we consider high volume oil changes.

Scot:    Yeah, yeah. If you're doing 200 oil changes and it takes 30 minutes per, that's a hundred hours separate.

Zach:    Right? Yeah. Just doesn't work. Yeah.

Scot:    So there, you know, that's weeks and weeks of time, which, which doesn't work. Cool. So what locations are you guys in? So you started in Orlando and have expanded quite a bit. What are some of the locations where you're in now?

Zach:    Yeah, so we start in Orlando and then you know, through, through word of mouth. You know, we expanded into Tampa. We went down to Miami, Fort Lauderdale, West Palm beach. So we kinda cornered the Florida markets, Fort Myers, and we worked our way up to Atlanta and then kind of out to out the West coast. So then we, San Francisco, Los Angeles, Seattle, Denver. So kind of the, the major, what we consider major airport locations is kind of what our target market's been.

Scot:    Hmm. Okay. And then talk a little bit about, so you spend a lot of time with rental, large rental car fleets. How do they think about the life cycle? Like how often are they buying vehicles selling them and, and how, what does that life cycle like for those kinds of really large fleet owners?

Zach:    So, you know, I think what we've learned in the businesses, you know, the rental car companies are in the business of buying and selling cars, right? And making money off those you know, they're, they're keeping them in fleet and renting them out to really for the depreciation. So they're an asset to the rental car companies, right? And so providing the service and maintaining the vehicles is in the best interest of them. Right? They want to maintain that value of that vehicle so they can turn around and sell for the most money. So what we found is, you know, they're going out there and they're, they're buying cars there, pain to maintain them. Right? And that's part of the, you know, it's part of the service we offered the preventive maintenance service, right? They want them to, first of all, they want him to be safe on the roads.

Zach:    So, you know, they care about the tires, they care about making sure the cars are rentable and ready to go. And then, you know, again, trying to get the most value out of them at the end of their life cycle. And you know, they're only keeping them for six months a year, right? They're putting 30,000 miles on these cars. You know, and they've got a lot smarter people than me that can figure out, you know, the life cycle of these vehicles and, you know, when's the right time to send them to auction and when to sell them and, you know, so we're there to support them and to help maintain those vehicles to the highest standards.

Scot:    Right. And then you started in preventative maintenance. And then if they go out and buy a bunch, you know, I think today you're actually dealing with a situation where they went out and bought a bunch and you have to help them on that and they and then when they get rid of them, do you guys do anything there?

Zach:    So currently, no. Yeah, you know, we help them, you know, there's, there's times that they have an increase of business and they need to go out and buy cars quickly so they'll go out to the auction. Right. And the goal is to get those cars on the road as quickly as possible. So, you know, doing a safety inspection, and getting the oil changed and helping them there. But as far as, we haven't been able to get in that market of the D fleeting of the vehicles a lot of opportunity there.

Scot:    Awesome. anything else kind of on the YLL history or, you know, so you've, you guys maybe give us, give us an idea of the scale of the company today.

Zach:    Yeah. So, you know, 10 years ago, start off with, with one person, one van. And you know, now whileL he's just,just over a hundred employees, we've got just about 70 vehicles on the road. You know, and more in 12 cities.

Scot:    So it depends on how you count cities. Yeah. Yeah. We get that a lot. Awesome. Well, we're really excited to, well, let's talk about you know, so you, so you approached us a while ago and talked about how do we combine forces with what was your thinking there?

Zach:    Yeah. You know, I started to see spiffy and learn, learn a lot about what spiffy was trying to do. You know, what I saw is, you know, we've, we've got, you know, while Al had this niche, right, the high volume oil change at airport locations soft, spiffy, had a lot of other interesting, you know, you guys rolled out your fleet management of services, which is really what caught my eye of, you know, you guys saw the need of fleets from the beginning of the inflating through the whole cycle to the D fleeting. And that's really where I thought that there could be, you can see the benefit to the rental car companies, the one stop shop, right? And so instead of sort of, you know, spiffy and while L kinda going at it against each other and being the competition, let's, let's join forces and let's, let's be the, to be the leader in the industry for the entire life cycle, those vehicles for the fleets.

Scot:    Awesome. Well, we're real excited here at spiffy to join forces with Weill L a we feel like this is going to be, you know, put jet fuel behind the fleet management as a service division. And my favorite part is we can kind of go through the numbers combined. We'll be in over 20 locations. Our goal is to get to 50, so we're almost at that halfway Mark now. So that's good. Well together we'll have over 200 vans out there with all the equipment to do the variety of services we offer. And then the high volume capabilities you have. And then, you know, driving and servicing the vehicles. We'll have together over 300 technicians that are trained. They're W2 technicians versus kind of random 10, 99 kinds of folks. So we, we share a vision in that. We, we, you know, to make the consumer or the B2B consumer customer happy, you really have to have a trained technician there.

Scot:    It can't be just kind of a random consult contractor. And then I think together we're servicing about 1500 vehicles a day. So that's a little scary as a software guy to get my head around. But that's a, that's kind of a, a good size of the scale over 40,000 services a month. And for all the people that are excited about oil I did some math and I think we're we're changing over 50,000 gallons of oil every month is combined company. So if there's anyone in the oil industry on the podcast would love to work with you. Cool. So you know, the topic of the podcast is vehicle 2.0 where we talk about the cars are going to change more in the next 10 years than they have in the last 110 years since the introduction of the model T. And we use the, the vehicle 2.0 framework where we talk about the four big waves that are changing vehicles connected car changing ownership, Evie and AB. So, so you guys are really you're kind of, I would say in that ownership side. So you've, you've been deepened the rental car model for a very long time. So we can spend the bulk of our time there. And if you wanna talk about anything else, that's fine too. But do you see any interesting trends with the future of car ownership?

Zach:    Yeah. You know, I mean if we're looking at car ownership and, you know, for the rental car companies, you know, we're seeing a lot more shared services. So, you know, riddled car companies are, are working with, you know, the big ride share services, you know, they're trying to try to get them to use their rental cars, provide, you know, new cars that are, you know, safer and, you know, provide a better experience for the riders. You know, we're also seeing a lot more the car shared, I guess when I say car shared services, but you know, commutes, the

Scot:    Kind of pulling and yeah, those are all the areas one out there. Yeah.

Zach:    Yeah. And we're seeing a lot more of that to where, you know, especially on the West coast, that's becoming a big part of the fleet business. You know, the Facebooks and Goggles and all that are trying to provide ways for their employees to get to work instead of bringing individual cars. Let's, let's start doing this car pooling and they're going to turn into the rental car companies task for the help. Yeah. So we've started to see that quite a bit.

Scot:    Yeah. I was I was listening to one of the conference calls with the Hertz CEO. And they got a question from one analyst, which was essentially you, you would think the Uber's and lifts of the world would start eating into the rental car companies. I know I consciously, a lot of business trips all, all kind of just use ride sharing instead of renting a car if I'm only going to one or two locations. And they, it was interesting, they, they actually said they have lost kind of like 5%, but it's like they're real short kind of, you know, kind of half a day kind of rentals but actually lose money on those. So it's actually been okay to lose that because then what have been able to do to your point earlier about keeping the cars they're keeping the cars longer and they're using that, they're adding a little tail period of three or four months there where they're now running them into the rideshare networks and that's, that's actually increasing their profitability because they get rid of the less profitable stuff and now they're keeping the cars longer and they're, they're getting a little bit of a longer life cycle out of the vehicles.

Scot:    So it's pretty interesting how it's to predict the unintended consequences of how some of these things will, will, will be impacted out there. I know a question I get a lot when we talk about you know, that we're doing preventative maintenance including oil changes is, and you know, I drive an electric car, so I get this question a lot is, you know, why, you know, why would you guys be investing in this oil change thing when electric cars are clearly going to be here tomorrow? What do you think about that?

Zach:    Yeah. You know, it's funny cause you drive an electric car. And I owned one for a while too. And you know, I got the same question of you on an oil change company and you're driving an electric car. And you know, what we realized is, is, you know, [inaudible] our main objective is to make sure the cars on the road that are safe, right? And so electric car or you know, a gas powered car, you know, they still need preventative maintenance if that's, you know, tire rotations, brake checks, you know, down to windshield washer fluid, right? They still have fluids in them. The key fobs still needs batteries. You know, there's a lot more than just changing oil. And so, you know, I think that electric cars, there's still the opportunity there and you know, we're getting asked to, to provide preventative maintenance services.

Zach:    You know, as the car industries are starting, you know, rental car companies are starting to purchase electric cars, right? I mean, we're, and we've seen it now for the last couple of years and you know, still providing those services. You know, we've, we've gotten calls of, you know, electric cars on the side of the road that are dead. Right. And can you guys go provide, you know, can you guys take a generator out there and try to figure out how to, you know, get these cars back on the road or, you know, maybe they're stuck in the bottom of a parking garage deck and they can't get a tow truck in there to get them out because they're dead. You know, so I, I think that they're, even though they don't have oil right there, still need preventative maintenance and I think the possibility for services is still there.

Scot:    Yeah, absolutely. It's funny, we work with some auction clients and one of the auctions had a bunch of Teslas come through and they didn't realize that, you know, they lose a little bit of charge everyday. So they let them sit there for 30 days and then they got bricked and you know, they, they, they didn't have any charging infrastructure. So we got that same kind of a call, you know, do you guys have any capability to come charge 20 Tesla's tomorrow in five hours kind of a thing. We didn't at the point, but it's something we're, we're always thinking about how can we, Oh well, you know, when that happens, how can we be ready for it and provide those types of services as well. How about connected car? We do a fair amount of that here at 50 because of the consumer. Maybe you guys ever kind of run into connecting car.

Zach:    Yeah. You know, I think it's something that we're starting to see. Yeah, I think that for the, the rental car companies, you know, having the ability to, you know, connect to the cars remotely, right? To track mileage, to track service history, things like, you know, you always a car check engine lights, right? Can the car give all that data, push that data, the rental car companies instead of, you know, physically having to go out there and pull that information from the car. I think it's going to be a game changer.

Scot:    Yeah. It seems like they'd have enough pull though Em's that they would be able to ask for those kind of capabilities in a, in a fleet management kind of way.

Zach:    Yeah. I think it's, I think it's common for, I mean, I think that's kind of the next, the next round.

Scot:    Cool. And then the last one, and this one's kind of out there, is autonomy. Any, any thoughts around autonomous vehicles?

Zach:    Yeah, I mean, I think it's coming, right? I mean, we're starting to see a lot more of it, a lot more testing, you know, with, with, I had a Tesla and, and you know, it was supposed to be, you know, I mean, getting towards the autonomy. Right. I mean, it always amazed me. And you, I think that as, as, as we get closer and closer to fully autonomous cars, you know, we we see LIDAR, right? And all the camera systems. And, you know, I, I think it's going to actually provide more of an opportunity for us to provide the, the proven preventative maintenance, right. Preventative maintenance to me is more than just an oil change, right. It's, it can be LIDAR, you know, calibration. It could be, you know, camera calibrations, you know, whatever that's gonna be, you know, I think that there's going to be the opportunity there.

Scot:    Yeah. And the, you know, these autonomous cars are racking up because they don't have a human in there that gets tired. They're racking up a lot of miles. You one of the examples of autonomy it used to be that, you know, it's coming tomorrow and now that they've scaled it back, one of the things that they're doing in Europe that I think will happen here is certain interstates having kind of autonomous truck lanes where, you know, there's, there's a human that kind of gets you to that point and then that's Honami takes over with a human backup. And then so, so it gives like truck drivers more hours. They can drive essentially by, by having the autonomy there. And you guys do some commercial stuff as well, so I could see that being interesting there where you would, you would want a mobile capability instead of, you don't want the autonomous thing to have to kick in and, and you know, drive someone 10 miles out of their way to get a preventative maintenance. Yeah, absolutely. Yeah. Okay. Cool. Well, Zach, thanks for coming on the podcast. We're excited to be your first venue. Hopefully this is the start of a very long podcasting career. And we're real excited to combine both spiffy and while L and look forward to working with you and your new role as our senior vice president of fleet business development.

Zach:    Yeah, thanks for having me. Appreciate it.

 

EP020 - CEO of MuvMe, Inc., Steven Messino, and Senior Carsharing Consultant, Dave Brook

http://www.vehicle2.getspiffy.com

Episode 20 is an interview with Steven Messino, CEO of MuvMe, Inc., and Dave Brook, Senior Carsharing Consultant for Carsharing.US; recorded on Thursday, September 12th, 2019. Scot, Steven, and Dave discuss a variety of topics, including...

• Steven and Dave’s individual career paths in the automotive industry, and how they first met each other
• The seven primary ownership models, such as leasing, financing, ridesharing, carsharing, and subscriptions
• A present-day look at the carsharing space and the potential for a tipping point for more car-sharing miles driven than owned vehicles
• The key differences between gated and ungated carsharing
• Steven and Dave’s thoughts on the potential for autonomy, both in the carsharing space and the industry as a whole

Be sure to follow Steven Messino and Dave Brook on LinkedIn. If you enjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.

This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.

 

Transcript:

Scot:    Welcome to the Vehicle 2.0 Podcast! This is episode 20 and it's being recorded, September 12th, 2019. In this episode, we are excited to have two guests from the car sharing industry. First we have Steve Messino CEO of move me and he's joined by Dave Brook senior car sharing consultant. Welcome to the show guys.

Dave:    Thank you!

Steven:    Thank you for inviting us.

Scot:    Oh, Steve let's start off with you. Let's we, we like to take listeners through a everyone's career path. So, so how did you get into the exciting world of automotive and car sharing?

Steven:    Okay. Basically I was consulting in Silicon Valley for various companies, so I came across a car share that started around the same time around 2011, 2012 as get around and what you now know is zero. And they were in a very similar business. They were all doing peer to peer car sharing. Ended up working with them for awhile. Them I went and did a project with probably at the time was the biggest car sharing software provider in the world, which was not a vera out of Toronto. And during that episode, Oh, we need to be create demand. So he thought of doing webinars because lots of people had an interest in car sharing but did not know a lot about the business or the market. So I went and did research and found out who were the leading experts in the industry of which Dave Brook was one of them.

Steven:    And the person who originally started the industry in the United States. So we, Dave and I ran a series of webinars. Oh, format, Avera. And then after, and we ended up finding a large number of people who wanted to get into the business. But it's very similar to a large number of people who want to start a laundry or a restaurant. Most of them didn't know a lot about it. And this got tied with Metta. Vera sold to enterprise, so there was no longer a major provider in North America. My phone rang constantly and I started talking to Dave and I said, we have all these people who want to do this. Why don't we offer them a package of, we'll teach them how to run once you've successfully run one days and we'll put together the technology and get them operational. And from that point on, David has been doing this or probably every major car share car company insurance company in the world, but I'm sure you'll be a little more humble. Dave, you want to give your additional background?

Dave:    Sure. Thanks. I guess I'm a serial entrepreneur and in the mid nineties, I started reading about this a wacky idea called car sharing that was starting in Europe at the time. And it seemed like a, a, an interesting idea that would have some application here in the United States. So I talked to people in Switzerland that had been involved in their very earliest car shares 10 years before in the late eighties. And it was sort of realize that, well, this wasn't rocket science. It was pretty, you know, straight forward to moving parts. So I stepped off the cliff a couple of years ahead of anyone else and started car share in Portland, Oregon. I was financing it out on my own pocket to, it was kind of before the VC and angel investor world sort of got to interested in mobility and transportation things.

Dave:    And after starting my company I was approached by another group of people from Seattle who wanted to do the same thing, only they wanted to do it on a much better finance scale than what I was doing. So I help them get going and after not to, after a couple of years it made sense for me to merge my company with what was flex car which had not only national aspirations, but did expand the in a 10 or 12 different cities all over the country. And they were going head to head with another company out of Boston that started two years after mine called Zipcar. And eventually the two merged and you know, under the Zipcar banner. And so that was the birth of you know, commercial car sharing in the United States. It, after a couple of years working for Flexcar, I decided that the corporate life was not, not for me.

Dave:    So kind of weighted out my noncompete agreement and then started consulting and I had been approached by a fellow Shelby Clark who had this idea of using private cars, privately owned cars, your, your car, my car, and being a platform to rent out those cars to other people. The same car sharing concept. And so the big challenge for any car share starting is finding insurance. Cause most people don't understand. Most insurance companies don't understand the special requirements of, of car sharing. But so get around Shelby's company was a relay rides, which is now called we're o, t,U , R, o. And m. Again, almost at the same time another company was starting, which is get around know, which is the other peer to peer company. And they've grown. And so for the last 10 plus years I've been working with they're startups. I've been working with auto manufacturers, insurance companies, helping them understand the, the, the car sharing space where it fits into overall mobility and okay. And having a good time at it. And then it's, that's how I met Steve as he, as he said.

Scot:    Very cool. So we definitely wanna dig more into that d what I find interesting is you guys were so early with the zipcars flex car you know, and then the f the iPhone came along, which really seems to have enabled these models to, to be a lot easier or at least more consumer friendly, right? Because with Zipcar, you'd have to Kinda go to your desktop, see what cars are there, run over there and hope that no one rented them out. Whereas with the phone now you have it all in your pocket and you can get more real time from a consumer's perspective, you know, know where the cars are.

Steven:    Yeah. Right. That technology shift actually happened about June, 2012 if you watch that, nobody really bought applications on iPhones and android and all of a sudden in that period it just jumped. And then everybody wanted an app on their mobile phone.

Dave:    Yeah, yeah. It it really did change things quite a bit. It, you know, the better, the more convenient you can make access to a shared car, the easier it will be for an individual to decide, well, this is so easy. I don't really need to own the car, spend all that money owning a car just to have it waiting for me out front. So it's a challenge for the operator to make it as convenient as possible. And you know, there's kind of multiple levels of convenience. One is finding the car and being able to reserve it. The next challenges, being able to kind of unlocked the car, you know, without having to go through a big a lot of steps and then taking the trip, returning the car and locking it up. And you know, that, so conveniences is what it's all about. And of course, keeping the car clean is the challenge for the for the car sharing operator.

Scot:    Yeah, we're, we're learning a lot about that here, here on our side. So that's super helpful. Thanks for given the backgrounds. I feel like you guys are elder statesman of, of the industry. So it's going to be a fun discussion. And here on our podcast we call it the vehicle 2.0 podcast cause we've come up with this framework where we talk about the four of innovation that are just kinda crashing through the automotive industry. We talk about connected car electrification, autonomy, and then changing ownership models. Since you guys are really steeped in that, that, you know, car sharing side, we want to spend the bulk of our time there today. So, so let's start, you know, kind of the history is really good to know. And here we are, 2019. Steve, we'll start with you.

Scot:    How do you feel, how do you think about the car sharing space? I'll look into it a little bit. There's you know, dug into this, there's some data points out there that say by 20, 30, maybe 10% of cars will be kind of, you know shared or not individually owned ownership. If that's a word and then a, I've seen another one that's the exact opposite where they'll say, you know, some kind of amazing thing, like 80% of cars will, will be you know, outside of the ownership as we know it today. Do you have a point of view on where we're going to be in kind of the next 10 years or so?

Steven:    Well, this is actually a great question because I spend a lot of time, usually in the summertime thinking about where the market's going since I build technologies for it. And you always have to anticipate three to five years in advance of what's going to be coming. Dave and I, when we speak, we frequently get asked this question, the big mover and shaker here, we'll be the autonomous car as it comes along. But it's going to take awhile. Everyone likes to say it's going to be here next year, but it's only in trial. Car sharing is going to be here for quite awhile easily and now 20 years and it just gets convenient if you spend much time talking to millennials, they are not really fans of cars as the previous generation, so they're, they're more inclined to do car sharing, which has already proven out in all the demographics and still approves out today.

Steven:    The, yeah, as they, as they get older they are gonna start buying cars because they're going to end up having families and that's going to be in cars so, but if they could get away with not having a second car, I think they'll do it in a nanosecond and it's easy to just spiral a second car to take kids to soccer practice on Tuesdays and Thursdays. If that's the only time you need the car or you needed a third time on Saturday to go shut up. I see this business being solid for 20 years. The primary technology change is as of 2018, 25% of all cars now have their telematics devices, which is what the smartphone shock to built into the cars. So probably in four or five years I'll, those of us who build technologies, well we'll be using the car is built in devices in order to talk to them.

Dave:    I I would, I'm not sure how much or they are going to be the car's built-in devices because I think the manufacturers are going to keep that information to themselves in case their, to start their own business. So I think that the, this is the market for you should third party after market type telematics devices is going to continue for quite a while. Okay. As Steve and I differ slightly about the, how quickly autonomous vehicles are going to be a major factor, I think that they will start happening quite soon. I mean without, without 'em a driver without a, whatever you call it, the person sitting in the driver's seat. But I think there are going to be specialized applications. You know, Tesla's clearly shown there's a lot of that a possibility, but there may be autonomous taxis going in, you know, 10 years on a, on a fairly large scale and you know, some, something really basic to to sort of keep in mind.

Dave:    There's no difference between autonomous Uber and autonomous Zipcar. There is just who, you know, what's the origin of the company?

Scot:    Yeah, yeah. I think Travis a the founder of Uber, Travis Kalanick is famous for saying that they have a good business today, but they'll have a great business once they can get rid of the drivers. But you know, I mean, just because, you know, at that point he had like 2 million drivers. He's kind of a PR oopsies there that he was famous for. So cool. So that's good. Let's, let's kind of dive in a little bit. In peel that onion, there's, I kind kinda track, I call it seven different ways that people own cars. You've got your traditional ownership. You can obviously finance, most people do. You can lease a, and then we start to get into the newer models. You can rent a car.

Scot:    So we've got the traditional rental car models out there. And then you've got ride sharing, which is kind of what Uber and Lyft represent today. And then car sharing when you've got peer-to-peer and then you've got, I call it B to c, but you guys probably have another name and then their subscriptions. First of all, I know you guys probably have what I've found in this industry. Everyone's got a little bit of a different vocabulary. So does that jive with what you car stop you guys call stuff or would you dispute and say no, there's different words.

Dave:    This is Dave. I would I agree. I mean traditional ownership leasing or financing, you know, strategies for traditional ownership. Then you got rentals. There's daily, I mean we think of daily rentals, but a car sharing is, shall we say, hourly rentals and subscriptions is basically monthly or, or six months. You could call it a rental or lease and it really depends on how it's structured. But all of those are, are where you're doing the driving. When you get into taxis and when you get into what you're calling ride sharing you've got somebody else doing the driving and arguably autonomous vehicles are the machine is doing the driving. So the just basic, when when car sharing started in Europe, they started calling it self-drive taxi which is not quite accurate but a sort of make it captures that distinction. And you Scot alluded to the, to the distinctions of different ownership models of car sharing. The ease of the business owns the car sharing business owns the vehicles or leases, the vehicles. That's most common or it's the what in the industry we call peer-to-peer where it's private, it's a privately owned car that is being, you know, rent it out covered by the insurance of the platform that handles the rental.

Scot:    Steve, any other input on the, on the models that we're talking about?

Steven:    Yeah, I think w the up and comer that everyone's been talking to mine for the last year has been the subscriptions and that was, that was actually heavily driven by Uber and Lyft drivers and eating vehicles. All right. Actually it's existed for over about 15 years. It just became popular. We have a customer in Long Beach who's been doing it and provides cars under a subscription model. So if you want to drive a Ferrari, you can have a Ferrari for a week. If you want to afford C-max, you can have that for, and he just basically allows everybody who participates to have access to any kind of vehicle they want as long as they pay the fees.

Scot:    Yeah. Interesting to talk about the newer models. It seems like we kind of had Uber and Lyft had their, their day and now they've gone public and those are really big billion dollar businesses. And then it feels like the peer to peer car sharing is where there's a lot of action at least. You know, I think Touro between Turo and get around, they've each traced about 500 million. So there's, you know, the big guys are playing, they're like the, the soft banks and the interactive corpse. The subscription one seems to be less popular with consumers. Especially, you know, the OEMs have these subscription programs and they look good. Like the BMW one's interesting. I think it's called access. And you look at it and you're like, this is pretty cool. I could just kind of, you know, switch out the car based on my needs. And then you look at the price and I think it goes 900, 1,520 500 a month and you're like, whoa. You know, that's, they, they feel like they're 2x the cost of a lease of that, that type of a car, which, which seems to be the initial reaction or when I talked to you is like, holy cow, they're way too expensive right now. Is that, is that what you guys see?

Dave:    Yeah, it's a, I mean, you think of it from it. This is all kind of being done through dealerships. You know, the, the, the, the OEM might be trying to, to sort of test the market with these, with these subscription programs. Volvo has one as well. Oh, her has tried it, has tried it. But sort of what are you going to do with all these cars? If, if, you know, if you have your, your BMW, you know, seven series and you get tired of it. Now this dealer has this used BMW seven that so you can put on the lot or he can try to lease to somebody else. I think that's where, that's where they, the difficulty of that is coming from. Okay. Keeping the price so high.

Scot:    Yeah, absolutely. Steve, do you agree subscriptions are facing some challenges at the, at least at the OEM level?

Steven:    Yes. I, this was when subscription started with the OEMs. This to them was a great way of try out our BMWs, try our Mercedes, try out our general motors cars and see which one you like, drive it for a week and get them out there. But I agree with Dave the price that, because would you try to do when you're making cars available is maximize your usage in subscription. If they're sitting on the lot, they're not making money and then you have to charge a premium, you cover your costs. So I believe that's probably the challenge until they can get activity up. But I don't see activity going up just to Uber and Lyft drivers and people who are testing them. That's not going to drive it either. So subscription is going to be that. I don't think it's going to be a big player. I think it's definitely going to be there and there'll, there'll be competitors out there trying to win part of the business.

Scot:    Cool. Let's talk about the peer-to-peer side and it sounds like you guys were there, the birth of it, and I'm coming in kind of here in 2018. It feels like a two horse race, Touro and get around get around, started really a little slower start, but a better user experience because they require, like they, they use this airbnb style English where you have the host and the guests kind of a thing so that they require their hosts, which is the car owner to have that device that allows you to remote your kind of remote control the vehicle or at least road access. And then and then so get around was really focused in the U S in a couple cities and then Touro didn't have that device and it allowed them to get a lot of cars on faster and more cities. But in the, now they've gone and they have a similar device where they can optionally have that you know, phone controlled access. Everyday to I point I see shows Troy at 80% market share get around at percent is. Does all that jive with how you guys think about the peer-to-peer space?

Dave:    Yeah, I think, I think that's right. A get around has, you know, has focused attention on, you know, kind of don shall we say, dominating our getting good market share in a limited number of cities. As you say, Touro made a decision early on not to do technical a in car technology, that telematics device, but did what, what you know, we call key exchange. And I think that they are serving somewhat different markets. The, because of the lack of technology, a Toros rental periods tend to be longer. More like car rental, you know, daily day and a half, couple of days at a time. Okay. And get around because it has the technology, it is able to two, not only have the longer term rentals but can support the more urban car sharing type of, of access to the car for a couple of hours at a time.

Dave:    So there they're going slightly differently. Both both, I want to say both of them have now expanded into Europe or European companies. It may only be one of them. And a, like you said, a Touro now does have a, a in car technology, which would allow this more spontaneous use of the vehicle without having to meet the the owner. But it's not a requirement and a, the people who are going to be most interested in it are people who I really anticipating, you know, renting their vehicles a lot rather than somebody who, you know, just wants to make a couple hundred extra dollars a month. So, you know I think it's a kind of a different strategy there. There clearly are people like airbnb. There are people who have simply gone out and bought used cars and put them on the, the P2P platforms. And you know, if they're in the right location and they price it right, they can make pretty decent money.

Dave:    Yeah. We see that a lot. They call it a, they call it their side hustle out there and it's really big in la where people, they'll experiment on one of the networks with their daily driver and then they'll, they'll like the extra income, but they don't like having other people in their cars than they'll, they'll either, they're, they'll buy a new car and then they're daily at their first car, becomes the, the rental car and then they become power hosts pretty quick. Where, you know, we found these guys that have 10, 20, 30 up to hundreds of these cars that are just kind of have built this little side business doing this is pretty fascinating. Yeah.

Steven:    Three or four years ago when these guys were growing we found a bunch of people in San Francisco who g who would get pests lists because there were so hard to get and they would post Teslas and they would charge one to $2,000 a day just to get access. Yeah.

Scot:    At that level, it almost becomes like a a payday pay, the test drive kind of a model or something.

Steven:    Yeah, exactly. What is the market? People would take it for the weekend, drive it and then decide if they wanted one.

Scot:    Yeah, I see.

Dave:    I think that people, one of the things that was surprising when, when relay rides with now Touro started was we expected that it would be cars would be a couple of years old before people would sit or be comfortable letting strangers drive them, you know, drive them when they, when like you said, when they first got them, they really wanted to [inaudible] kind of keep it special. But almost immediately cars less than a year old were showing up on the, on the system. So it part of it is just a, shall we say the younger generation has a different relationship to their cars then? Well maybe it's not only younger generation. Some people have a different relation to ship to their cars than others. You know, the people look at more functionally or they look at it as more of a personal, a personal statement, personal expression.

Scot:    Cool. so now that we've laid some good groundwork for car sharing in the, in the and both your experience and everything let's dig in to move me. So Steve, tell us about you started talking a little bit about how you guys came up with the idea but give us kind of the overview of the company and, and what you guys do.

Steven:    Well, good. So we're not, when we started it and I recruited Dave to give me some help, it was because people wanted to get into car shares and they needed to learn how to actually run a car, share what's involved in it. How do you start it with your business plan? How do you think through being profitable? David Woods does an expert at it. So, so when somebody's would come to us a look, we need the technology for some reason, first time people are interested, first thing they want is a technology and I'd say no, what you really needed to do was talk to David first and help you think through this business. Oh for the territory. It's in the your constituency that you want to serve. What their demands are going to be, what the population density is. These are all things David is an expert at.

Steven:    Once they get past that part, then we get them to what kind of cars, where they need to be. And one of the decisions they get too is what kind of car shirt and they actually want to operate. Most ones, if there's small start out stations station or round trip, they, they operate very similar to the rental car. In other words, you get it here driving anywhere you want, return it. Once they start to get larger and more mature, then they moved to free floating because the capital costs of free floating are much higher. Instead of buying 10 the 50 cars, you're now buying 50 to 200 cars. And that requires investors to go make happen. And it's a, it's a more sophisticated approach and as time goes on, most of these companies, they tend, when one, these companies tend to do both. They tend to do both free floating and they do round shrimp or station to station.

Steven:    So the effect on us was how do you build software that has to do all this and anticipate technologies. So let's even go look where things are going. From that point once you're starting to do a car share, some cars shares actually want to rent seats in the car, especially senior citizens. Hey, I'm thinking for other people, I want to charge them all. So, so now you have a car share turning into a ride share. So you have to adapt your software to go the ride sharing. Once you do that, then you have, okay for example, you can take a car that's not heavily rested, rented it and car share in the evenings, give it to Uber and Lyft drivers. Well, there's not just Uber and Lyft drivers. You can give it to doordash drivers. People are now delivering cargo, they can rent the car. And so you have to account for that in your, in your design so you're not just renting a car, your Hesta account for riders, cargo types of cargo and you can see it. And then of course the world went to suitors, bicycles and the technologies. Basically the same technologies that started in car share really take care of all of this. And so those of us in this industry, all we're trying to do is anticipate what the next move, what the next move is to make sure it's already prebuilt and ready for the operators when they're ready to go.

Scot:    Got It. So your software, it seems like it's super flexible and it can provide all these different options and probably even an intermingling of the options. Is that a good characterization?

Steven:    That is a great characterization and we had to do a complete redesign once we realize this industry is moving so fast and people are so creative that you have to adopt, adapt for them as quickly as you can.

Scot:    Got It. Give us an idea of how many customers,

Dave:    Yeah, Scot, it's a, it's kind of worth noting that there's a big overlap here between, you know, what we think of as classic car sharing, commercial neighborhood car sharing in a, in a city and fleet fleets use or can use similar software. Traditionally, you know, a fleet, a corporate fleet or a government fleet, you know, has a whole bunch of keys hanging on a wall or in a, in a lockbox and you, you check out the [inaudible] and pick up the key and take it back. But increasingly fleets are installing the same telematics that you know, Steve and I have been talking about here. And so they're able to shrink the size of their fleet a buy and getting much higher utilization because somebody could check out a car for a half a day. Somebody else could check it out that afternoon, whereas before you basically could only do a daily rental out of, out of that car.

Dave:    So it saves money to the company or the agency. It allows them to manage it much more efficiently. It's the same technology and in particular with fleets you might want to you know, that company might want to offer the option of, you know, of somebody going across town to a meeting. They could take other people from the company with them. And so they need to not only rent the Co, you know, sort of access to car, but then assigned seats to two people. So it's in Europe they call it a corporate car sharing, but it's really just a fleet, a fleet system.

Steven:    I think if you allow me to elaborate, what I think Dave is hit on is what was car sharing? One. Dot. Oh, and car sharing, one, two. Dot. O is kindly as is transmuting extremely fast.

Scot:    Interesting.

Steven:    And because of it, when little challenges start to come up. And one of the things we look at, believe it or not, as the technology is going to be autonomous cars, because these are ones we need to bring backwards into car sharing. So we, so we can know what's going on with people, cars, locations, making sure that cars get things that are futuristic. We're already addressing like making sure cars talk to each other so they know the state of what's going on or the vacant talk to the passengers so they know the state of the passengers. This is, you're going to see this world move as fast as a smartphone business.

Scot:    Hm. Cool. give us an idea for a, the size of move me. Do you guys think about, about the number of cars in your network or the number of, of car sharing companies? How, how, how big of an impact are you guys having right now?

Steven:    Okay. There's two ways to look at it, number of operators and number of cars. The fact of the matter is if you have an operator with a thousand cars, you actually put in almost the same amount of effort as somebody with 10 cars because everybody likes it their way.

Scot:    Yeah.

Steven:    No matter what you think to use your experiences, they think it should be different. Yeah. So, so you, it doesn't matter who you choose, they all want a better in what they perceive to be a better user experience. And so you have to meet

Dave:    And in a way to differentiate themselves from the other guy. You know, it may not be better, it's just gotta be different.

Steven:    And so that's what ends up which we end up doing is making it, you look unique for them. Yeah. So they look special in the market.

Scot:    Cool. So how many cars does that equate to? Or operators, I guess. Correct.

Steven:    Well, W with the average number on opera. Oh my God, it's all over the place. Dave, why don't you answer that better than me?

Dave:    Sure. Well, I mean, the typical car sharing company is in a, in a, in an individual city is going to have a, probably a couple of hundred cars so they won't get there all at once. In the peer to peer, I'm sorry, in the this a one way free floating car sharing that we've, we've mentioned a couple times. The cars don't have a fixed location, but they can park in any legal, they can be parked in any legal parking place within a big zone, you know, kind of the inner part of the city and the people find where the car is located by, like you were saying at the beginning of the broadcast, you know, with, with a smart phone and they don't have a fixed reservation period. You don't schedule it. You just find the nearest car and keep it for as long as you want.

Dave:    And if you're just driving across town, you might pay for that by the minute. And if you want to keep it longer than it ratchets up to by the hour and even longer by the day. Daimler and BMW have both have services that are now in the code process of merging right now, and it's going to be under the share now franchise. But these, you can't do this free floating with fewer than a couple of hundred cars because you, you've got to have them reasonably close to where people live or they're not going to use them. But, but there are car share co-ops all over the world and, and a bunch of them in Canada, you know, that they might have 40 or 50 cars. 50 is about the smallest you can do profitably. Otherwise you're, you're running it as a kind of a, a social, a social service, you know, probably a nonprofit.

Scot:    Okay. And do you feel like, so you know, having experiment with these, it feels like the free floating as a much user experience than kinda like what'd you guys call Zipcars station to station? Or is that, I've heard some people use gated. Station to station?

Dave:    Yeah, station to station. It's, we call it round trip because it's not, you can't take them between stations. You have to bring it back to the same station. With the, with the free floating there are no stations. You, you can just return them anywhere. It's, yeah, it's a, it's a different user experience in the sense free-floating is a different user experience in the sense of that you don't have to plan ahead. You don't have to make a reservation and you don't have to specify when you think you're going to bring the car back. Which is what you have to do in the, in the zip car model. But by the same token, because it's so flexible, the company has to charge a lot more of the per hour price of the, a free floating almost double what, what a, a station to station would be.

Dave:    And in some cases it's even more than double. I just so the user, so I think functionally what happens is you, you satisfy a different type of trip. W the, the free floating membership typically is a lot bigger than the same a membership, the membership in the same town of the, of the round trip type car share. And I think the reason is is that you're able to do a type of trip with free floating that you can't do with round trip. And that's this one way trip where you can take it across town or you can take it out of town and bring it back, but you don't have to return it to the same place you started from. And so even car owners are interested in this free floating because it lets them take a kind of a trip that they can't do with their own car. So it's a different user experience and consequently it's a satisfying, a different mobility need than, you know, the classic, a round trip

Steven:    To make it simple, free floating is really a great convenience factor. So you pay a premium probably as much as 49 cents a minute, but what you use car sharing, you're down to maybe 7 cents per minute. And if you're starting to rent those by the day, it gets down there one or 2 cents in there.

Scot:    Yeah.

Steven:    So it's really just a matter of convenience and, and that's the premium you pay for.

Scot:    Yeah. Cause it's the operator free floating is probably a nightmare, right? Cause you had cars kind of watering all over the place. You got to go find them. You mentioned scooters earlier and I see these people trying to find these scooters that worked our way in all kinds of crazy places. And, and not only

Dave:    That to, to sort of maximize the returns on the scooter, the companies have to spend a certain amount of time relocating the scooters because in the morning people, many people want to take the scooters and go to work. And then there might not be that much demand for the scooter during the day until the evening. And so they will relocate a certain number of scooters constantly. You see it in the bike share and you see it in the free floating car sharing as well. Usually in the free floating car sharing, it's a, they're relocating a car that is perhaps quite near the perimeter of the service area and there isn't much demand out there. And so they're going to move that car back into more of the heart of the service area.

Scot:    Cool. I do want to spend a couple minutes on some of the other areas here that we talk about on the podcast that I think does a really good deep dive in the car sharing side. How about Steve, you mentioned autonomy a little bit that you think it's coming. It feels like for a long time it was like right around the corner and then this year it seems like it got pushed out a little bit. There was an incident with the one of the Uber vehicles hitting somebody and you know, even even the Waymo guys, the Waymo CEO said something like, I don't think we'll ever be at full a hundred percent autonomy. So there seems to be kind of, we're in that, you know, that that coming, the expectations are coming down a bit. Where, where do you put that? We'll have some pretty good ab penetration.

Steven:    Well, in fact, Dave and I were talking about this before this, cause we, we get asked this all the time as the last numbers I thought that were reasonable is that you would see them as a norm in major cities about 2030

Scot:    Yeah.

Steven:    That, that would be the norm. I mean, are you going to use it to tow your boat in the suburbs now? But so for major cities, endless slowly grow outwards. Probably from that I was mentioning the days, when would we get to say 70% penetration? And it was purely my guests that maybe around 2075 you know, but that's a long way out. And part of it isn't, is because when you buy a car, it's got an 11 year life. Yeah. So you buy an asset like that, you're not going to dump it right away unless something's really unbelievably convenient and it's less expensive. So autonomy has to be there in your neighborhood all the time. And then whatever neighborhood you're going to, and that's gonna take a while.

Scot:    Yeah.

Steven:    Dave, your opinion?

Dave:    I think that 70% number is is a, an important one to keep in mind because you know, there's lots of discussion about the the safety benefits that autonomous cars you know, are going to bring because they won't be acting irrationally like drivers do. And those benefits don't, don't you know, start showing up in insurance rates and, and a lower hospital admissions and things like that until you get to 70, 80% penetration, the 70 to 80% of the vehicles on the road are smart, are smarter than humans. And you know, if you look at the accident statistics of autonomous cars to date a very high percentage of them are, were caused by a, you know, kind of erratic behavior by somebody else on the road that the autonomous vehicle couldn't anticipate.

Scot:    Darn humans.

Steven:    If you run a show, what I found fascinating is when they were designing these in silicon valley about six years ago, I would attend all the sessions and listened to the PhDs talk about how do you deal with these human problems?

Scot:    Yeah.

Steven:    Such as if four cars are all hit a stop sign at the same time, who moves first? Well, the way humans do it is people start to nudge until somebody asserts themselves.

Dave:    It's the guy in the test. It's the guy in the Tesla who goes first.

Steven:    So much what I've been doing is you have, you have to teach the car to do the same thing, move a little bit, look around, see what everyone else does, move a little bit. And then if it's free, you move. So well, a lot of it is teaching them the cars to deal with humans.

Scot:    Yeah. Where do you, I'm often when I kind of play this forward, the one group, I kind of think, I don't know what happens to them is the dealerships, you know, so, so it feels like a lot of the OEMs are viewing some of these models as an interesting way to almost go direct to the consumer. And then, you know, in than if by default people aren't gonna be buying as many cars, the dealership may become a service center. But then I always, you know, you know, the, you ask people, you know, when's the last great service experience? You had a dealership and you, you don't get a lot of grave responses except maybe Lexus or something like that. Do you see those guys being the kind of the, you know, where, where do they fit into this kind of, you know, world of 2030 where, you know, the, we've, we've got pretty good penetration of these new models.

Steven:    Well, part of this, you look at the statistics right now, there's about one point $2 billion billion cars in the world. And if you, and you can look at any of the major research sites that is expected within a few years to drop down the 1 billion. And the largest effect on this is the sharing community car sharing, ride sharing. It's just, it, it's expected by about 2030 that it'll be 16 to 20% of the car market will be in the sharing industry.

Scot:    Yup. What happens to that, do you think dealers are, that's a, that's a lot of hit for the dealers because presumably that's a 20% reduction, but it's going to be even heavier on new car sales. Right?

Steven:    Yes. And, and also you're getting efficiency. If you start thinking on the autonomous car, could run 22 hours a day continuously as opposed to most Dave probably knows the most recent numbers. What's the average amount of hours of car shirt is used per day, Dave?

Dave:    Well, typically a eight to 10 hours per day average.

Steven:    So as you get more efficiency, you drive down meeting that number of assets in the world. Yeah.

Dave:    See the, you know, I mean I think the car dealers can see the handwriting on the wall. Yeah. They have these longterm contracts with the manufacturers and they're struggling too to sort of figure, retain their role in the distribution a process.

Scot:    Yeah. Interesting.

Dave:    I wouldn't want to be a car dealer.

Scot:    Okay. Yeah. I kind of come to the same conclusion.

Steven:    Well, and as consumers go less to them you can, you can understand the challenge. Yup. Yup. You don't need as many in town. I mean, I'm Ford announced a reduction in the number of vehicles they're going to be producing. What is, what does the market really need? And I think we're going, not only are we going to see less dealerships, I think Ford made the right move. You're going to see less, less car types. Yeah. Cause you're not gonna need all these people competing. If you need a sedan, it's a sedan. As long as it runs relatively well, you're happy.

Scot:    Cool. Well guys, we're this has been awesome. I could go a whole nother hour, but I know, I want to be conscious of your time. So one last question. If folks want to find follow, tweet, retweet, like whatever you guys online, where can they find your, your, how you're writing and thinking about the industry?

Steven:    Dave, want to go first?

Dave:    Sure. I have a industry blog that I've been writing since 2005 called car sharing. Dot. U S is the, is the web address, car sharing. Dot. U S

Steven:    In my case, where at? MuvMe Inc Dot com Muv m e I n c.com and we're going to be doing a lot of promotion about the new technologies in the next few months that we're coming out with, and so we'll look forward to getting feedback from your audience.

Dave:    Yeah, Definitely.

Scot:    Awesome. Yeah, maybe we can have you back on and talk about that in a, but that's going to do it for today. We really appreciate you guys taking time out of your busy schedules, changing car ownership to come on the vehicle 2.0 podcast.

Steven:    Thank you.

Dave:    Thank you, Scot.

EP019 - Future of Ownership Deep Dive

http://www.vehicle2.getspiffy.com

Episode 19 is a deep dive into changing ownership models, recorded on Wednesday, September 4th, 2019. Scot breaks down the past, present, and future states of car ownership, including:

• The three phases of auto ownership; from birth, through the lease and financing adolescence, and into the digital present.
• Who will claim the largest share of the $1.2 trillion transportation industry in the US?
• A look at where car ownership stands today and identifying the largest shifts from traditional dealerships.
• Breaking down the pros and cons of every rising trend in ownership, such as ride-sharing, car-sharing, and subscription models.
• Conservative and radical projections for the impending shift in vehicle sales, expected over the next decade.
• The hopeful future, where you can turn your car into an autonomous taxi.

We recommend following along with Scot’s presentation from the Auto Intel Summit, which you can download here. If you enjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.

This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.

 

Transcript:

Scot:    Welcome to the Vehicle 2.0 Podcast. I'm your host, Scot Wingo. This is episode 19, being recorded on September 4th, 2019. We hope you've enjoyed the last six episodes, which we recorded live at the Auto Intel Summit. And today we are going to do our first in a series of deep dives. A deep dive episode is where we spend the entire episode. It's going to be a little bit longer, so that may take you a couple listens to get through, but we're going to do a deep dive into one of the vehicle 2.0 concepts as a refresher. The Vehicle 2.0 framework has four components. We talk about the electrification of vehicles, autonomous vehicles, connected car, and then last but not least, ownership. And that's what we're going to spend today on. This is actually a version of a presentation I presented at the Auto Intel Summit. This is going to be a unique podcast because it actually does have a pdf that goes along with it that will enhance the podcast.

Scot:    So if you're listening in your car or while you're exercising, the audio will be fine alone. But if you are at a computer, you may want to pull up the PDF. If you go to our show notes, you'll find the link to that pdf there. And I do recommend you pull that up now. So we'll assume that you guys have found that and jump right into this. So one of the, I come from the ecommerce world and one of the things I found interesting about the auto world is in the ecommerce retail world, everyone is squarely on board with the fact that the pace of change is logarithmic now. So for example, Sears was started like 150 years ago and then now is almost bankrupt because that company did not keep up with the pace of change that's happening coming into the auto industry. You're looking at another industry that's kind of over right around a hundred years old.

Scot:    And it's really interesting. I don't think I'm, as I've talked to folks from the various constituents of dealers and OEMs and whatnot I don't think that the industry has really caught up to that pace. So one of the things that I like to show is a chart which is for those of you falling along is essentially slide two, page two. And this shows the rate of adoption of different technologies. So what's happening is we as humans, you know, we wake up every day and we kind of work our work our eight hours and, and our awake for 12 to 16 hours and we go to sleep. And every day is very linear. A lot of the change we're dealing with is logarithmic. So logarithmic change happens in a, you know, powers of 10 effectively. So what used to take a hundred years can now take 10 years.

Scot:    So I'll give you a real world example of that. So for example microwaves I remember I'm from a small town in South Carolina. I remember our first microwave was like $900 is a huge investment. And we were one of the first people in, you know, not only my neighborhood, but probably our city to have a microwave. Microwave's took a good 50 years to get to the adoption rate where they're at over 90%. Now. You'd go to Walmart, you know, now they're essentially a, and everyone has one. If you look at the adoption rate of this kind of technologies, what's happened in the last 10 years and this is because we've got all these platforms now, like smartphones and digital payments and whatnot, it's taking a lot less time for things to get to 100%. So if you look at social media, Facebook went from zero to over a billion users in about five years.

Scot:    Uber went from zero to, you know, near a billion users very, very rapidly. So, so what we're dealing with is a rate of change that we as humans, and especially if you're in an industry that has been slower moving is frenetic. And I think that's a good backdrop as we think about these different ownership models. You know, will, how fast will these things happen and what should, should you do if you're in one of the, the industry and you're going to be impacted by that. So let's dig into ownership. So what we're going to talk about today is a little history about car ownership. I think it's always helpful to make sure we're all on the same page about where we're coming from. And then also in that vein, what's at stake, why, why should we even think about this, these new ownership models.

Scot:    Where are we today with these models and then what's the future hold? So I think of the US ownership and kind of a model of three phases. The first phase we'll call that the birth of car ownership. And that's from 1908 with introduction of the model t by Henry Ford to 1945. So kind of post World War II. Then we go from 1945 to 2006. That's the ownership adolescence phase. And then last, what we're in now is what I call the digital phase, which is 2007 to 2019 let's dig into the birth phase. So in the birth phase, we had kind of the first cars coming out in 1908, as I mentioned. And those were essentially, you had to buy them outright. So there was no purchase plan or anything like that. But a an interesting company started called the Ford Delivery Company and they were the first rental car company and they did this per mile, so you would pay, you know, something like 10 cents per mile.

Scot:    So cars were very novel. They wanted to get people in them. And they came up with this interesting kind of rental car model. So real cars didn't really become super popular until later, but that was the first introduction of that model of car ownership essentially is a, almost like a, a, a test drive, an extended test drive. Then in 1919 GMHC came out and introduced financing. So you used to have to pay for cars upfront and then they actually introduced financing so you could pay for them over a year. So that's kind of fun to think through, you know, all right. Now you know, let's say one of these cars was the equivalent of I don't know, $30,000. Essentially the financing back in those days was essentially in a, it was almost more like a Stallman plan to pay for it over a year.

Scot:    Obviously a financing has changed dramatically over the years, but that was, those were kind of the ownership models in the early phases. So buying outright a financing was introduced. And then rental car, then we go into the adolescence. And so an after 1945 in the fifties, leasing was introduced, leasing was before then before the fifties, leasing was popular for commercial vehicles, but it had not been applied to, to non-commercial or individual ownership type models. A company called U s leasing came out and, and essentially brought that in. Did we had a really long period of time where there wasn't a lot of innovation and car ownership. So we go literally from 50 years, from 1950 to 1999. And the big innovation in 1999 is Zipcar. So Zipcar was founded by two folks that went on a European vacation. And they were really surprised and pleased that in, I believe they were in Germany where they found this car sharing model.

Scot:    We're in Germany. They could go and find a, a car in a dock area rent that car and drive it around for the day and then return it. They thought that model would do well in the United States. So they founded the companies of car. So now we have the introduction of car sharing here in the very early days in 1999 now that brings us to where we're gonna spend the bulk of our time, which is the digital phase, which started 2007. I anchor this on 2007 because that's when the iPhone was introduced iPhone one. And if you remember, remember iPhone one, it was very controversial, a Nokia and Microsoft laughed at it and said you know, not only is it a terrible phone for making calls, but it's pretty much useless. No one's going to own these things. Boy, were they wrong? So the, the genius of the iPhone, and this didn't come along until iPhone two was the app store. So that's, that's where the iPhone became this open platform that exposed you know, caused the creation of a lot of these new models that we're going to dig into. So it's really important. And, and that's why I anchor the digital phase on the birth of the iPhone.

Scot:    So what, what the iPhone has allowed to be created is a whole new model called ride sharing and ride sharing. Has an interesting history. In 2008 Uber Cab launched, which was essentially going to put an app overlay on top of the existing taxi infrastructure. That didn't work out very well. And then Uber moved to more of a model around black cars sort of limousine type vehicles. And then they had a competitor in San Francisco called lift that launched in 2012. And Lyft was really person to person ride sharing. So, so trying to figure out you have all these folks out there that are willing to drive other people around. They don't know each other. But could we use our phones as a way to not only connect those people but get to a destination safely? In response to lift, I'm kind of going to the person to person ride sharing model.

Scot:    Uber launched, which was well into the ride sharing world on the taxi side or the, the limo side Uber came out with Uber X, which is the person to person writing platform. So from there we were off to the races and here we are in 2019 and obviously both those companies are, are quite large and public. Now the other interesting model that has been introduced a couple of years ago is it kind of person to person car sharing. So, so you know, when I think of Uber and Lyft, that's ride sharing. So someone owns a vehicle and they're going to drive you. That's ride sharing. Car Sharing is where you're essentially you know getting a vehicle in, from someone in, it's either a, B to c kind of model like Zipcar. So that business is car sharing with you or a person is car sharing with you.

Scot:    These, these businesses were kind of born out of the airbnb ethos of all right. People have a second home or a vacation home or a room in their house or a guest house or something like that. And they want to rent it out to folks you know, person to person. That's how airbnb was born. So a lot of these care show, car sharing, person to person, car sharing, companies use that. A lot of the same language and a lot of the same thinking in their businesses. The, the two big guys here are Toro and get around. So this is where you're seeing a lot of innovation right now. It's kind of the next wave behind the ride sharing companies. Uber and Lyft is in the person to person car sharing segment. So we have Toro Toro has raised 438 million obviously a, I think that puts it into what they would call a unicorn status in silicon valley.

Scot:    So over a billion dollar evaluation. And their competitors get around who hasn't raised 443 million. So you know five, 5 million more than Toro. So these companies are raising significant capital, which indicates that they're kind of in their hyper-growth phases and making a run at, at, you know, becoming large companies, possibly ips. In the B to B side of car sharing, you have maven and cargo, which we'll talk about later. Another area that's really popular from a press standpoint but less popular consumers is vehicle subscriptions. So there's a soccer company called clutch, which is now owned by Cox Automotive and they they essentially power a lot of the car sharing subscription programs out there. And then some of the companies have actually done their own. So a lot of the OEMs are expanding, experimented with this. So Volvo has care by Volvo.

Scot:    Cadillac had, they actually closed us down book by Cadillac. BMW has accessed by BMW, Mercedes bins has the Mercedes Benz collection and Porsche has Porsche passport. There's also some individual dealers that are experimenting with this model. And a lot of other kind of startups in this area like drive, black tie and prime flip. So in conclusion, if we kinda think about these three phases, what we end up with is seven different ownership models for cars that are out there today. If we go back to the birth, we have number one, which is outright ownership, and then number two, finance in three rent. Then as we go into the adolescence phase, we have leasing. So that's our fourth car sharing and I kinda count car sharing as one. But there's two flavors of car sharing. There's the B2B side and the person to person side.

Scot:    And then we have ride sharing and subscriptions. So those are our seven ownership models that we're going to dig into. Before we do that, let's look at what's at stake. Why are people investing 500 million, you know, over $1 billion just in one of these segments? Well, the u s consumers spend over $1 trillion a year on transportation and they drive over one and a half trillion miles just in the u s alone in passenger vehicles. There's 280 million vehicles on the road today. So, you know, this is a really big addressable market. If you could just get, you know, 10% of that, that's $120 billion market. Essentially. And if you can get 5% of that you know, just 5% of the market, it's $60 billion. So while we see these companies all have very, very small market shares, we have such a big number that spent on transportation every year that you can build really big companies here.

Scot:    Even if they're going to be having a one, 2% type impact. So that's very attractive to both entrepreneurs and investors. Also, you know, I mentioned earlier, you have an industry that's been around for over a hundred years and the car ownership experience, you know, I remember going with my dad when I was like 10 and buying a car and then now when I buy a car, it's almost exactly the same experience. You know, you, you go, you meet that sales guy, no one really loves that process. Then you have to negotiate with his manager. Then you sit down and you go through a very long kind of you know, process to, to end up buying the vehicle with all these financial options and things thrown at you. So, so you're looking at an industry that, that I think has, you know, hasn't really changed in a hundred years, has pretty low customer satisfaction.

Scot:    You know, the, the whole car buying and owning process is not amazing. Compared to kind of compare that to like an Amazon prime type experience. There's a lot of room to go there. Another factor here is the cost to buy a new vehicle has gone up substantially. So if you look back kind of 10 years, a new vehicle on average was $28,000. Well, with all the new you know, the, the user consumer preferences towards SUV type vehicles, all the new electronics and all the new features and functionality, the average vehicle cost has gone up to 35,000. So that, that's pretty material, right? That's a 7,000 you know, almost like a 30% increase over 10 years and the price of a new vehicle and some of that is self inflicted by consumers by, by what they're choosing. But that, that's Kinda the, the essentially owning a car has gotten way more expensive in just 10 years.

Scot:    The, the cost of owning and operating a car. So you would think a lot of this new technology, you would reduce that. Actually it's gone up pretty substantially. So the cost of owning and operating a car is about $9,000 a year right now. So, so that, that's pretty substantial. And that's those two things create demand at the consumer level for new models. Okay. So let's dig into each of these models. So we have outright ownership, financing, leasing, renting, ride share, car share with the two flavors of B2B and p to p, a person to person. And then subscriptions. So for those of you following along, I'm going on to page 21 in the, the presentation. So if we look at ownership finance, lease together as kind of a subsection of those ownership models. Last year in the United States, 17.2 million cars were sold.

Scot:    11.8 million of those were truck SUV. So you can see that a, you know, substantially large percent of these are now are in that truck SUV category. Many, many manufacturers have stopped making sedans. So, so the consumer demand for sedans is way down. The, the average alone on these vehicles. If we, if we look at how many people buy outright, only 14% of consumers buy a vehicle outright, which makes sense. This is, this is a pretty expensive, you know, this is kind of pretty much you know, a year's worth of income that you would have to accumulate to buy a car outright. So because of that, 86% of people finance their vehicles within that finance bucket, 30% are leased and 70% are traditional car loans. That always surprises people. I think a lot of people I talked to lease vehicles and they are surprised.

Scot:    Other people aren't leasing, but again, 70% are doing the finance kind of model where they're gonna own it out right after four or five years. And then more you know, I would say a more fluent segment is leasing the vehicle at 30%. And then that leasing segment it's interesting as we think about ownership, a lot of people kind of think, all right, I'm going to pay, you know, two, three, four or $500 a month for, for a car. And that's kind of going to be a steady state. And this is Kinda like a gateway into the subscriptions that we'll talk about the average loan for those folks that are financing the vehicle, the average loan is over 30,000, $800. And today you're looking at a 68 month term. So what is that? Five and half years. So, so five to six years.

Scot:    So, so folks are really you know, the financing vehicles have grown up to have a pretty low monthly payment, but what they're doing is they're just pushing out the terms. Compared to that first kind of installment plan I talked about, which was paid a year, the rental car market is fascinating. And, and here at Spiffy, we, we work a lot with rental car companies. When you talk about this for folks outside the industry, you know, what your intuition would say is, wow, ride sharing. The, the rise of ride sharing miles from Uber and Lyft must really be hammering these rental car companies. And what you actually find out is there's a little bit of truth in there, but then there's also a side to that and unintended consequence you may not be aware of. So let's look at that. So there's over 2 million vehicles in the United States active today.

Scot:    It's a $28 billion a year industry. And that industry grows right in line with GDP. So it's growing three to 5%. Just like GDP, the, the impact. What's interesting about rental cars is yes so they think about trip duration. So, you know, they have a segment of users that will do kind of day trips. So that same, same day rental, same day return. Then you have one, one, two, three, four, five day, and then greater than five day increments. What's interesting is, so some of the public companies, so, so hertz for example, listening to their conference calls, what they're seeing is ride sharing is hurting the super small trips. So as most impacting day trips and then one day, but then two day plus have not been impacted by ride sharing. So, so they're seeing, I think they've taken about a, a 7% hit on these shorter trips due to ride sharing.

Scot:    So then you would think, you know, all right, maybe that's 10% of what they're doing. So, so you, you would expect them to be shrinking, not growing three to 5%, but where they're making up for that actually is on the tail end. So prior to ride sharing these companies would hold vehicles up until about 50,000 miles, then they would wholesale them out at auction. What they're doing now they have so much demand for longterm rentals from Uber and Lyft drivers that they're now keeping the vehicles from 50,000 miles to 80,000 miles. And in that, those 30,000 miles they're renting them out on 30 day periods into the Uber and Lyft networks. And that's actually more profitable for them because the short trips are very expensive and not super profitable for, for the car rental companies because they, they, you know, if it costs $30 to turn around a car and it comes in and out every day, then you haven't made enough revenue to cover the turnaround.

Scot:    So what's happening is they're actually, they've lost, let's call it 7% on the short trips, but they're making up that plus a lot because it's more profitable on the back end of the life of the vehicle by putting them into the car networks. So you may not realize it, but the, you know, especially in big Metros, the, the car, your Uber or Lyft driver is driving, could very well be a rental that they've done a 30 day rental from Hertz, Avis enterprise or of their imprints. So, so that's really interesting and that's a, is fascinating to see the unintended you know, the, the counterintuitive reaction that's happening in these things. It also shows, I like to talk about these ownerships models as if they're separate things, but they actually are really starting to overlap and interesting and fascinating ways that we'll look at. Now let's look at ride sharing.

Scot:    So that's the rental cars and now we're into ride sharing. So again, in my, my, my vocabulary ride sharing is you know, you have a driver that comes and gets you. You're usually using an app to hail that driver. And Uber and Lyft are the big players in the United States. So there's a lot of buzz around this obviously, and you've got two large public companies that have been created, multibillion dollar companies. But really when you, when you look at it if you look at 2018 and this is, this is government data that essentially from the Department of Transportation and if we look at 2018 really one and a half a million miles have been from ride share which is 0.9%. So we're not even like 1% of of transportation miles yet from rideshare. So, so very, very small overall and it's forecasted to stay about the same.

Scot:    But you know increased by 2028 be about 3% of overall miles. So it'll be growing really rapidly, but still it won't even be kind of 5% of miles for the next 20 or 10 years based on the modeling that's out there. So it's still very early days for this and this because the transportation industry is so large, you know, we're, we're, if we're traveling one and a half trillion miles, it takes a lot of, of ride share miles to make it den on them. What I find fascinating is, you know, why are people using ride sharing. You hear in the press beats the drum on this that, you know, people are giving up their cars for ride sharing, but when you actually look at the use cases, I think it's fascinating and it's certainly that's going on in some of the larger Metros like New York, Boston, Chicago, San Francisco.

Scot:    But I think once you step outside of those areas, it's really interesting to see why are people using ride shares. So this is from a Wall Street firm called JMP securities. They did a pretty large survey of thousands of ride shares to kind of say, why are you using a ride share? The number one use case at 46% is a trip to the airport. So, you know, this is fascinating. You know, I, I think, I think the, the people that are actually the companies that are impacted the most by ride sharing is airport parking. So folks are doing the math. You know, fortunately here in the Raleigh Durham area parking is like maybe 20 or $30. But in large cities, you know, you can easily pay $100 a day to park your car. If you're at Boston. So you know, the math doesn't make, it doesn't make sense to park your car there.

Scot:    So everyone's taking a, a ride share to the airport is the number one use case. The next couple of use cases are a, we're familiar with here at Spiffy because it creates a lot of problems for Uber and Lyft drivers and that is leaving a clar a club or a bar at night. So 33% of consumers that use rideshare are using it when they're out drinking and partying. 16% is at a party. So you add those together and you get what? 49%. and then there's going to a dinner, going to a concert and going to a sporting event. When you roll all those up, it's like 70%. So actually the biggest use case I think of ride sharing is I want to go out, have a good time, and not worry about having a designated driver or getting a DUI when I come out.

Scot:    I haven't seen any stats on this, but I, I think there's this probably this interesting freakonomics like study we could look at where I think the rise of ride sharing is probably plummeted DUIs. So, so I think that's, that's great too because we have less people out on the road driving intoxicated. So, so there's this, you know, there's really interesting use case. I don't, when I talk to people in the industry, they don't think about the reason we see this a lot is spiffy is unfortunately when you do transport, a lot of people that mount drinking accidents happen and we call those biohazards. And we, we do a lot of help with those situations here at spiffy way down at 10%. Sub 10% is the use case of my daily commute. So most people are not using Uber and Lyft for their, their daily commute.

Scot:    So as we peel the onion on ride share and look at Uber, Uber has all the stats we gave you or as of the reported first quarter of 2019. So these now these companies are public. We have a lot of really good data here. Uber has 6 million active drivers and a 62 million active riders. That's a global number. They don't break that out by the u s but half their businesses. U S so I would say probably 3 million active drivers in the U S and about 30 million active riders in the United States. So, so a lot of, lot of people really using these services. If you think about the u s we have 300 million folks with us. So anything, you know, 30 million active riders would be about 10%.

Scot:    I'm looking at Lyft. Lyft has 2 million active drivers, so about the same size as Uber when you compare apples to apples for the u s market. But because Uber invested very heavily in going international. They're about twice the size of Lyft or, or more. They also have Uber eats. Lyft doesn't have that. So Lyft, Lyft has 2 million active drivers, 20 million active riders and delivered over 205 million rides in the first quarter of 2019. When you look at these companies, if you're really interested in this, I strongly recommended recommend when you go public yet to file a document with sec called an s one. So if you googled, for example, Uber s one or Lyft s one, you'll get a really nice you know, this is going to be like a 300 page document that these businesses put together detailing every aspect of their business. I recommend pulling those down, looking through them.

Scot:    And then I always the, the way the SEC requires you to draft this it's kind of like all the good stuff's in the middle. So you have to kind of like talk as if your business is terrible. And then you'd talk about some of the good stuff and you have to end with why it could be terrible. A lot of people misread that. And you know, as wow, y w this business is terrible. So the section you want to go to is the management discussion. So the, it's called the management discussion and analysis or the MDA section. It's usually literally about a third of the way through the document. That's, that's really where you get in the heads of the CEO and the team running the company and understand how they think about the business. And that's where you can really get, get really deep understanding of these businesses.

Scot:    So, so if we look at in the U S if we look at if we compare where they are Uber versus Lyft effectively in 2016, Lyft had 22% share an Uber pretty dominant at 78%. But Lyft has made a really big push and is gaining share. So as we, as, as we left 2018, which was kinda the last time data was available Lyft had 40% market share, an Uber 60%. So, you know, what lets doing is competing on price and really trying to differentiate. And have happier drivers. They share a little bit more revenue with drivers. Lyft was the first out that let you tip the driver. So really kind of trying to have a different brand kind of model than Uber. Uber had some challenges with their previous CEO and some of the things he said did. And then now they're kind of on the mend with a new CEO, a new, a new kind of trend in the industry.

Scot:    And I, I'll kind of put this kind of still inside the ride sharing bucket is we have these new suppliers that are being born that, that will try to supply into the transportation network companies. So a lot of the industry publications will call Uber and Lyft transportation network companies. So there's all these new companies that are supplying in there. Previously I mentioned the rental car companies. So the rental car companies, I would hazard to guess, and there's not a lot of data on this, but just because of their scale are probably the largest suppliers into the TNCs. So what that means is again, Hertz, Hertz, Avis and enterprise essentially taking tail end cars, cars that have a fair amount of miles on them, usually 50,000 up and supplying them into Uber and Lyft drivers. There's also several other companies doing this, such as Hyrecar. And for those falling along, I'm on slide 28.

Scot:    You know, so higher car a is really a, a smaller company. I'm thinking about a hundred million in revenue, then went public and they really just provide short term 30 day ish rentals for Uber and Lyft drivers. Lyft is actually, Uber didn't experiment where they would actually lease cars into their own. Drivers. They, they exited that business before they went public and that merged into f a I r so fair is a very large supplier for the TNCs. Lyft is doing it's own program called Lyft express drive. And then another company that's really interesting is in New York called Buggy where, you know, they're, they're essentially doing these short term rentals where you can go in and sign up online and within hours you can have a vehicle. And they've, they've done the math on, I think they have like two or three models that work really well in New York City.

Scot:    So I think one is like a Prius and one is a newer Toyota Corolla and they, they're so tied into the networks. They will say, all right, if you want, one of the ways paths you can go through is they'll say, do you want an Uber select vehicle, an Uber XL vehicle or an Uber x vehicle or a vehicle that would be available for Uberpool. And they know those requirements and they have vehicles that meet those requirements. So as a driver you can say, you know, wow, my, my daily driver, I can only do Uber X. And I've heard Uber select is where all the money is in New York. So you can go rent a car that gets you into that Uber select tier from one of these suppliers. So a lot of really interesting kind of innovation happening as a feeder into Uber and Lyft that, that you wouldn't know about, but it's right there under the surface.

Scot:    Now let's talk about car sharing networks. So I talked a little bit about Zipcar before. Let's do a little bit of a deeper dive to kind of understand how this was born. So Zipcar, as I mentioned, was started in two, in 1999 and you know, you can imagine before you had a smartphone, it wasn't super useful. So you know what, these are gated. So what the user experience was largely around college campuses and, and areas like that. So you would know, hey, in my college, I'm a student in, at my college campus, I've seen these d zip cars parked and two or three locations, you sign up, you pay a monthly subscription, they could use certain number of miles. If you go over those miles, you pay a per mile fee. But if your student, you know, you could go and say, all right, I really need to run errands.

Scot:    So you would go to the grocery store, go to the mall, and then you use the car for four hours and put it back in one of the gated areas. And then you would go, you'd use your desktop essentially to log your, your miles in and out and whatnot. 2009 once the app store is open this, this really took off a lot more because the phone is a much better use case where you can say, now, all right, I am in location X. I press a button and I can, I'm pleased to see there's a zip car three blocks away from me that I can go use. And I can see that there's one there. So you get, so the phone added Geo location, kind of hyper geo knowledge of what's going on. And then availability of inventory, which is really critical to this model because what really stink is if you're a college kid, you walk all the way across campus and then the two zip cars are gone.

Scot:    So really bad user case there not having visibility. So the phone has really solved that. So that really took off. They did have some controversy around the founders that got kicked out. New new team was bought in and the company went public in 2011 after kind of two years of hypergrowth after the introduction of the smartphone app they ended up getting acquired by Avis in 2013 for about $500 million. So, so definitely a big success story in, in, in the transportation space. Unfortunately, once they're acquired, Avis hasn't really provided a lot of information. What I can tell you is they're available in 500 cities globally, over 12,000 vehicles out there. The average trip is 47 miles. And then within car sharing, one of the innovations is Zipcar is kind of the earlier model where they're, what were called docked.

Scot:    So again, there's these branded parking spaces you have to go to this parking spaces. It can be relatively inconvenient both on the pickup and the return part of this transaction. Especially if, you know, let's say you did all your grocery shopping in the doc for the Zipcar is a fair distance away from your dorm and you're a college student. Now you got to lug all that stuff. You bought a across campus back to your dorm. So a lot of the you know, a lot of the innovation in car sharing has been in the undocked category, but over in the docked category, we do have Maven which I believe is supported by GM. And then that's, that's out there as, as an option as well. The undocked companies. So you have cargo share now reach now, drive now enterprise car share.

Scot:    And a lot of the OEMs are testing this. So Toyota has a test in Hawaii called Hui. I don't know how to pronounce that. We'll, we'll call it hooey. So, so a lot of really interesting things going on there that we'll explore. So one of the challenges is the reach. So because there's a business that's owning these, it's got to someone's to pay for the car. Right? so if you look at Maven for example, it's available in like seven us cities. And you know, so Ann Arbor, so a lot of these start in Michigan and, and the Detroit and our Arbor areas are always possible. Chicago, a lot of them kind of start in the Midwest and then go out to the edges. And then another challenge with these car sharing networks is security. There's a high profile Cartago I believe, or may have was maven.

Scot:    They had you, it was the Mercedes one, which is car to go. They had 75 vehicles stolen. So, so people you know went to the dark web, they got some, you know, American Express credentials. So they stole credit cards, use those stolen credit cards to get access to the vehicles and then stole the vehicles. And well all of these vehicles have tracking whatnot before the local authorities could track them down. The vehicles were stripped down to the skeleton and all the parts were gone. So a lot of these companies have actually exited the Chicago market because they, they there's a very efficient car theft capability there that, that I don't think you can, you can get around. Well the big news and the car sharing networks is consolidation. So BMW and Daimler both had separate programs and they got into kind of realize, you know, hey let's go in this together.

Scot:    If we each kind of, you know, are going to spend tons of money looking at this type of a program that's inefficient. We're all developing the same models. Let's, let's pool our interest. So they reached a joint venture recently here in 2019 that brings Cartago and reach now under one roof. The brands here are a little confusing. So I think they all have this now things, so they have share now, reach now and Parkville all within this, this whole conglomerate. And the share now is the car sharing program that we're talking about. Park now is their acquisition of park mobile. So you know, you, you have some, the jury I think is still out on car sharing, both in the doctrine undocked if it's going to take off, it's going to be the undock. It's also you know, what's interesting is in the ecommerce world, we see brands going direct very aggressively.

Scot:    And I think we're gonna see that in the, in the auto world which will obviously disrupt the dealer networks. So most of the experiments in car sharing or from the OEMs here, it's 50, we're under NDA with many in it, you know, OEMs that are doing experiments around car sharing largely in the San Francisco and La areas. So there's a lot going on, even more than than I can report here. And it's mostly the OEMs kind of directly figuring out, you know, is this going to be a whole new model that they should be involved in? And because they're making the cars it kind of is viewed as a verticalization of supply chain in an interesting way. So the jury is still out on that one, not really up to scale. And I would argue subscriptions are kind of in that program where we are seeing a lot of scaling up is the car sharing.

Scot:    From a P2P perspective. So I mentioned earlier we're got this kind of very similar Uber versus Lyft battle forming between Toro and getaround. So Toro decided to go wide very quickly. In the, in the early days trows decision was to get an in many cities as quickly as possible. Get around said no, the user experience is more important. We want to have a limited rollout and we're going to ask every one of our car owners, what they do is they use this airbnb language. So a car owner as a host and then a car renter is a guest. They don't use rental language at all because they, they're trying to stay out of all the regulations around rental cars for the consumer. It feels like a short term rental. This a lot cheaper than, than a normal rule. But the companies themselves use airbnb type language.

Scot:    So I will, I will adopt that as I talk about them. So get around, requires their, their host, which are essentially the people that own cars. So we'll call this host to have a device installed that gives the guests the iPhone, the smartphone ability to lock in and lock the car and have access to the car. That's really a nice user experience because now you don't have to mess with getting the keys. So, so get around. That device is called Getaround connect. And for the longest, a very long time, it was a required part of it. They've since loosened that up. So if you look at them today, Toro has a 5,000 cities, over 5,000 cities, thousands of cars. They're running this really interesting Porsche host program where Porsche goes in and they say certain hosts that have one or two Porsches available are almost like ambassadors for the brand.

Scot:    So you can get a, essentially an extended test drive. So you can go rent at nine 11 for a day from a Porsche host. And that host is going to be able to tell you all about the features and functionality that car and really you know, highlight what's great about a Porsche. So that's an interesting kind of another intersection of the OEMs promoting this, this kind of short term rental model. I'm in the car sharing world. Toro came out with its own device you can install called Toro go. And on the consumer side you can say, all right, I want a Toro in San Francisco that I want a Tesla and I want it to have this device installed. Most recently Toro raised $250 million from interactive court. So you see a lot of the biggest investors in this space are Interactive Corp, Cox automotive car are automotive Kar.

Scot:    And then you also have Softbank, Softbank in the world of startups. Softbank is the, the, you know the Mac daddy of the gangster, of investing in, in large companies scaling up and that's who's invested in getting room get arounds in 300 cities. They just acquired a competitor called Drivvy; d, r. I, v, v. Y. Um, and over in Europe which gave them an international presence. They say the average car on their network owns, earns $500 a month. And then they recently raised 300 million from Softbank and they have a partnership with Uber where, you know, again, all these companies are kind of becoming suppliers into the the ride sharing companies, which I know it gets confusing. But you know, you can say let's say you have a second car, you can rent it on, you know, for 30 days to an Uber, Lyft driver through get around.

Scot:    So, so a lot of really interesting things going on there. Only compare these two guys according to some of the folks that measure the data here. This is sourced to second measure on, on slide 34, if you're following around, Toro has about 80% market share in the u s and get around 20%. So it looks like it looks like kind of Toro is going to be the Uber and get around. It's going to be the lift, but we'll still see us very early days. Again, these companies have all raised hundreds of millions dollars recently. So, you know, I am, I'm actually starting to see TV ads and things from all these different models out there. The thing that we see as 50 that's interesting is we see this lifecycle with get around in Toro. So, so here's how it works. So let's say you, you you hear about one of these things and you're like, wow, I would love to make some, you know, some extra money from my vehicle.

Scot:    So you start, you start putting it on with these networks and you really, the extra capital that you're getting, let's say, you know, a week out of a month you rent a car and you get $150, you know, that's nice and helps you maybe cover your car payment and pay for gas or anything. But then what you start to realize is having someone in your daily driver is Kinda Weird, right? Because it was just kind of strange sharing your car with someone. But then what a lot of people do is they'll buy a second car and that's Kinda like their investment car. And they'll say, or they'll buy a new car and they'll take their primary driver and turn it into their, their car sharing car. So they'll effectively have two cars, a daily one that they live in, and then a second one.

Scot:    And they'll, they'll put that out there and they'll reel, they'll start to make $500 a month, they'll pay off that car very quickly and they'll realize that, that that's a really good way to earn, you know, effectively own a vehicle. Pay It off and then start generating cash. So once you pay off that vehicle becomes a cash cow then they'll buy another one, another one, another one. So, so what we find is these power hosts have developed where there's folks that own five to hundreds of vehicles and they're, they're using this you know, they're using these networks to build pretty interesting micro fleet businesses. So, so then they start parking them around airport parking. So this is interesting because now you know, now we're back to airport parking, which is suffering from ride sharing. But if you do want to do a longer term lease from a truck, get around and you're going to lax or SFO what you'll find is most of the parking now is occupied by these types of vehicles.

Scot:    So it's Kinda funny how these things all intersect. I do expect this model will have an impact on their rental car company. I don't think the scale is there quite yet. But I think in three or four years you're going to start to hear them have to react to these things. And maybe they'll, they'll actually participate. Or you know, if I'm, if I'm hurt, I start to say, well, why is it fair? These guys can essentially run out cars and not pay all the rental car fees I have to pay and all the regulatory things. And it's gonna be interesting to watch. Just like the taxi industry fought up against Uber and Lyft. I think we're going to see the real car industry start to really kind of come at these car sharing companies. Okay. The last model to look at before we start looking at the future is subscriptions.

Scot:    So, so these, these sound good, you know, you're kind of like, all right, I'm already leasing a car. And what if I paid a little bit more and everything's included. So the insurance is included. Everything I think you pay for the gas, but all the maintenance and everything is included in what they offer. That's pretty cool is they all have a different degree of being able to switch cars. So some of the programs, usually you have a different kind of a good, better, best program in these things. So, for example like the let's say the BMW one, you have three tiers icon, the legend and BMW m. So that's where you're going in the m class, which is their highest end. So the icon you have, you know, kind of the three and four series BMWs and the legend, you get the five and six series and then the m you can get kind of like the convertibles and the fancier cars.

Scot:    As a consumer, it's an interesting use case because you could say, you know, I have three kids, so during the week I want a, you know, an SUV type car. But on the weekends my wife and I are going to the beach or we're going up to the mountains, we'd like to have a convertible or a different type of vehicle or maybe you need a four wheel drive. So, so there is an interesting use case there. The challenges, the costs. So that BMW when I was telling you about the lowest end is $1,000 a month and then it gets up to about $3,000 a month for the high end. So you know, just feels like it's priced itself way outside of even luxury consumers when you're competing with, you know, that would be nice, but if, you know, I could have one of these BMWs for five or $600 a month, I'm not sure consumers willing to pay 10 x then.

Scot:    So, so I'm just not really sure where this is going to go and what we'll have kind of, you know, seems like there's something there, but they've got to figure out how to get the cost way down. It needs to be, you know, the killer app is if we were designing this is it would be lower than my lease payment or, or equivalent and I could do peak vehicle flips and you know and have access to, you know, some vehicles I probably wouldn't normally have access to. So I think we're a long way from there. All right. So those are the seven models and a deep dive into where we are on all of them and what's going on. Where is the future taking us? So we want to conclude here by, by kind of looking forward and I'm on slide 36 for you home gamers.

Scot:    So where are we today? Vehicles are only used 5% of the time. So you have, you know, it's largely people's. If you rent as prior, your your biggest asset and if you own a house, it's your second biggest asset. So you're actually using your, one of your biggest assets 5% of the time. And it just feels wasteful. You know, think of all the cars just sitting there parked right now while I'm talking to you. So think of all that real estate that you know, could be green space or bike lanes or parks or whatnot. 89% of trips are single writer. So again, as we think about the environment that's really inefficient. And then again, the average cost of the vehicle is $33,000. So, so where the, the metric I have found that drives a lot of these models about where the future's going is cost per mile.

Scot:    Right now we're at a cost per mile and the term kind of ownership model of, you know, again, a finance own outright our lease and about $3 per mile. So, so that's the real key driver. How do we drive that cost down? So electric vehicles are one of the ways, you know, so with electrical vehicles, you're obviously not consuming gas. You know, the cost has come down like on the model threes and some of the other models coming out where you're not having, it's not a luxury kind of a, a vehicle anymore. It's in that you can get vehicles are getting closer to that $33,000 number. The, the key driver though is autonomy. So there's a couple of models here. I'm sorry. So I went out and kind of looked at all the different models about when is Carner ship really gonna Change.

Scot:    The first model is from BCG analysis and it's onside 38 for those of you falling along. And what it shows is kind of a, what I call a slow boil. So here we are in 2019 and they really don't show much of an impact until 2030. And a lot of that is from autonomous vehicles, so, so they're kind of saying by 20, 30, 70% of cars will still be you know, individual ownership kind of conventional models. And then 30% will be these, you know, Robo taxis and car sharing is all the models I've talked about outside of individual ownership. So so that, that, that feels right to me because I come from the ecommerce space and you know, we're only about 15% of of sales are e-commerce and we've been at this 20 years and it's obviously a better model, but there's still just a bunch of people that don't trust the security.

Scot:    They like going to the store, they love parking, and you know, waiting in line for hours to get stuff. I don't, I don't a hundred percent understand it, but you know but you do see pockets where it's as high as 50, 60, 70%. So, you know, that's one model and I call that kind of the slow Boyle. Then there's the a model that shows crazy fast. And this is from some guys out of Stanford that, that have a model. And they have a company called rethink x that published this and their model, we, the new, they kind of use a miles kind of a metaphor, but it's about the same. And this model, 80%, by 2030, 80% of the cars will not be owned by individuals and 20% will be these new models. And when you, when you dig into how is it possible that, that a smart people are forecasting such different things?

Scot:    What you find is it's the autonomy piece. So to get that, to get down from $3 a mile to sub a dollar a mile, which is where as consumer, you will logically then according to these economists, you'll logically choose to not own a car anymore. Because owning a car will be $3 a mile and using one of these other things that will be a dollar a mile, it takes autonomous vehicles to be pretty prevalent in Robo taxis. So that's the real crux of this is when are we going to have, you know, large numbers of miles driven being able to be done by autonomous vehicles.

Scot:    A good example of that is on slide 41, where, you know, when we're at $3 a mile, then the addressable market for these new modes of transportation is about $20 billion. So, so large. But once autonomous vehicles get you to a dollar, then it mushrooms up to 750 billion about 150 times the market today. And then once you can get a below a dollar, then it will be 300 times today. So that, that's the real dry or the model. Let's see if you're interested in this. On slide 43 Tesla did a effectively a, a full day on autonomy. And then there you know, there's a lot of really interesting discussion around the technology behind autonomous vehicles, like lidar versus cameras and whatnot. But then at, towards the tail end when Ilan was wrapping up, he talked about Tesla's overall plan to have robo taxis out there.

Scot:    So these vehicles will be under $38,000. So call it a Tesla Robo Tock taxi, which is effectively a model, a model three or a model y with kind of a base configuration. And you know with full autonomy, he thinks they can get the cost down to 18 cents a mile. You could charge less than a dollar a mile for a profit of 65 cents. And then this, this vehicle could be out there generating 30 k a year for you in profit. So, so really interesting. The application of electric and autonomy you know, they, I think they can get the miles down to, you know, way below a dollar a mile. But again, you know and of course in typical Elon fashion, he said, we're going to have a million of these in a year. So I, I think that's very aggressive. I think the regulatory environment is not gonna allow that to happen.

Scot:    But it is interesting to think through, here's a real car maker thinking through these economics and you know, putting, putting off flagged down at six, 18 cents a mile. The other big trend that's driving the future of transportation is multimodality. So multi-modality is that the kind of the holy grail for transportation is imagine you have an app. This app says OK you tell the app, I want to go from point a to point B, and that may be I'm in New York and I want to go from, you know, Tribeca up to I don't know central park. And that app will tell you here's the optimal, do an optimize on time or, or money or, you know, maybe there's a slider in between there. And depending on what you do, that app is fully dialed into all modes of transportation.

Scot:    So that app may say to you, all right, for time, you're gonna take a scooter to the subway stop. And here's, here's, here's 12 scooter companies and you're going to, there's a lime that's close to you and we're going to go ahead and light that up. And you get to the line, you take it to the subway stop, you park it, now you get on the subway and the app has timed it to where you're there two minutes before the trainer eyes. Now that train takes you somewhere and then it puts you on a, you know, now you take a ride, share to the next leg of your journey, et Cetera. So kind of intermingling all these transportation modes from micro mobility on bikes and scooters. Two medium distance from ride, ride sharing and maybe down the road, Robo taxis. And then also intermingle mingling, car sharing.

Scot:    So another use case could be, alright, I'm in New York and I want to go to Maine on vacation. So this app says, all right, here's how we're going to connect to this. You know, you're going to take a let's see a bird from here to the subway, that subway is going to take you out to LGA. And you're now going to go to this long distance LGA parking area where there's a Toro waiting for you and we've rented it for the two days you need, and that you're going to take that Toro, do your trip and come back, and now you're gonna have to, you know, the, you know, for whatever reason Toro wants you to return that to a different location. And here's how I'm going to get you home. So that's, that's, that's kind of the big driver of the future of multimodality.

Scot:    So everyone's gunning for this. So it's gonna be interesting to see who, who gets there first. You know, you, you obviously, so Uber and Lyft are trying to get there very aggressively. So you have some multi-modality there between, you know, the different ride sharing all the way from, you know, the XL, the black cars to select to scooters. Some of them are starting to pull in there. You had the map companies. So you know, I use, when I go to New York, I use Google maps for this. It does a really good job of telling me, you know, walk here, do this. It doesn't really have the scooter thing in there. And the bike thing I'm not really big on those models, so I'm fine walking to the subway stops and it tells me where to go. The other thing I'll depart with is there's always a lot of interesting unintended consequences.

Scot:    So with availability of ride sharing, for example, this is slide 47 you know, what they're finding is over half of the, the ride sharing trips are new miles. So a lot of lot of folks thought, okay, Uber and Lyft are going to really increase utilization. But what's happening is because they've made it so easy for people to go to from point a to point B, people are actually increasing the number of miles they travel. So, so a lot of these are new trips and so you know, one of the surprises is ride sharing is actually increased congestion in big cities like New York, Boston, Chicago, San Francisco. That's, you know, what suffering from that a little bit is public transportation. So if you're in New York, it's actually, you know, a much better user experience to ride a ride hailing vehicle than get a taxi, which would be too expensive.

Scot:    So cheaper than a taxi and it's more expensive than public transportation, but it's a better experience. So, so a lot of incremental new miles coming out of unintended consequences. So what's this mean for you? So you're obviously listening to this podcast because you're somehow connected to the transportation industry. You may be an ecommerce person that thinks about package delivery and you know, if we do have these robotaxis that that's going to be a game changer. But, but essentially think who's going to own the vehicles and when are we going to see this? This flip happen largely driven by autonomy. Who's going to maintain all these vehicles once you have more, you know, if we're, if we're kind of currently at a 5% utilization and we take these vehicles up to a hundred, that's a lot more miles per vehicle, a lot more drivers, a lot more maintenance.

Scot:    Who's going to do that? What happens to car dealers and these new models where, where do they sit? Are they the guys that are the parking lots and the maintenance for these vehicles? What happens to the OEMs? Do they essentially go direct and cut out dealers or do, does everyone still have a role if you're, if you're not autonomy does, does that mean, you know, that has consumer, you don't really care. The difference between a Volkswagen and Mercedes is no longer a status symbol because you're just using this thing for five miles and you don't really care. What, what's that mean? You know, what happens to the ride share and car share companies when autonomy comes along, they're obviously investing heavily to make sure they, they kind of put themselves out of business in that model. And then, you know, there, there's always a scary side to this kind of stuff.

Scot:    But what I found is these kind of really big changes create opportunities that are bigger than the downsides. So, so what does it mean for your business and how can you innovate and be a part of this and capture some of these, you know, hundreds of billions of dollars that are going to spill out when, when this happens. And last, you know, we, we have kind of seven, seven big groups that are really fighting over this. So we have the car sharing networks both docked and undocked we've got the P to p companies, we've got the subscription companies, we've got the traditional rental rental car companies, the ride sharing companies, and then all these companies investing along with, so you've got the OEMs and other companies you know, investing heavily in autonomy. They're all in a collision course trying to fight for this one and a half trillion dollar market.

Scot:    And it's gonna be really interesting to watch that. And if you find this topic interesting, you're in the right place. Cause we are going to keep you up to date on everything going on with these ownership models on the vehicle. Two Point Oh podcast. Thanks for joining us. We hope you've enjoyed this deep dive. And if you have any questions. So first of all, we would love a five star rating over in your favorite podcast listener. And if you have any questions you'd go to our Facebook page over at spiffy a or I think through our vehicle 2.0 page. You can ask some questions, be happy to answer those. Thanks. And happy driving.

EP018 - Managing Director at Maryann Keller & Associates, Jeremy Alicandri

http://www.vehicle2.getspiffy.com

Episode 18 is an interview with Jeremy Alicandri, Managing Director at Maryann Keller & Associates; recorded live at the Automotive Intelligence Summit in Raleigh, NC on Wednesday, July 24th, 2019. Scot and Jeremy discuss a variety of topics, including:

• Jeremy’s journey through the automotive industry; from an e-commerce startup to automotive strategy with Maryann Keller & Associates.
• Dealerships combating margin compression following the first operating loss in over a decade.
• The current and rising impacts of carsharing and ride-hailing on new car sales.
• The acceleration of digital retailing as a solution for new and used car dealerships, including services like Carvana.
• Fair as a leader in subscription-based digital retailing

If you enjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.

This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.

 

Transcript:

Scot: Welcome to the Vehicle 2.0 Podcast! We are live podcasting from the 2019 automotive intelligence summit here from sunny Raleigh, North Carolina. It's Wednesday, July 24th, and we are excited to have on the show. Jeremy Alicandri. He is the, oh, we'll have to find out your title. You're with Maryann Keller and Associates. And what's your official title?

Jeremy: Managing Director.

Scot: Managing Director. Wow. The MD. Not a medical doctor. Thanks for coming on the show.

Jeremy: Great. Thanks for having me,

Scot: Yeah, I know you, I this shows your, you're crazy busy. So let's start by giving listeners an idea about your career path. We were chatting before the show about you and I share e-commerce. So that's kind of fun. And then I would love to learn more about how you got into your role.

Jeremy: Sure. I just want to issue one clarification. You called it sunny Raleigh. It's hot, humid and sunny. So I do have a background in e-commerce. Actually before automotive, I started a company when I was 16 was a retailer. E Taylor ran that for about eight years moved into doing consulting services for a number of different companies both inside and outside of the automotive space. And one of those consulting opportunities led to a full time opportunity within automotive group where I was an executive for I guess about seven years. And then after that I went into consulting at a price Waterhouse coopers and then now where I am now at Marian Keller and associates. So we are in automotive strategy consultancy and what we do is we help clients both inside and outside of the automotive industry get a better sense of where it's going help them answer some of their strategic questions, do a ton of research topics and write papers and, and offered a detailed analysis to, to help them with whatever it is that they're thinking about. So that's kind of a little short summary of my background.

Scot: Awesome. Are Most of your clients like dealers or are they the OEMs or are they the parts manufacturers or which part of the ecosystem do you touch?

Jeremy: I'd say most of them are large companies. I touched the automotive space, so, so it could be a, a, it could be a large publicly traded dealership group. It could be a large part supplier and auto maker or lender. Even in short, so we're seeing all different types of companies come to us with with common concerns about where the industry's headed and they want to run some scenarios, bias. And that's what we, that's what we do.

Scot: Very cool. Do you guys, are you kind of, I'm the type of firm that will actually publish a bunch of stuff or is it more we do publish thought leadership and be published

Jeremy: A few papers, a in connection with the Auto Intel Council which is actually a, I guess a sub division if you will, to the auto intel summit. So the council and the summit kind of hand in hand. And then we also issue study. So earlier this year we issued a, a study on franchise dealer advertising where we interviewed nearly 400 dealerships and published where we think a dealership advertising is headed and where it is now and what's working and what's not working and kind of give a very granular level understanding to those that may be interested in that space.

Scot: Very cool. And then here at the show you're a talk is tomorrow and you are talking about the the Costco car buying program, right.

Jeremy: I'm going to Mc, I'm going to be interviewing the person that runs that program. Very successful program sold over 650,000 cars last year, which is really amazing. And yeah, we're going to be talking with Rick Borg of of Costco. Should be fun. Cool. Fun. 30 minutes.

Scot: Yeah. So they don't give you a ton of time to do this thing, so it's hard to get it off all the data in there. This in the, if you don't know the answer to this, that's fine. But this is the Costco program is an individual dealers that are in there or is it powered by some other company?

Jeremy: It's a, so it's individual dealers that are the ones that are actually providing the cars to consumers. But the types of dealers that participate those are some of the questions that I hope to find out tomorrow, the answer to because I don't know 100%

Scot: On the show to report what we learned. So here on the vehicle 2.0 podcast, we have a framework where we talk about the four waves of change kind of coming to the auto industry. You are in the ecommerce industry as I was and you know, we've seen trillion dollar companies created out of the changes that have happened there in retail. But we use it, the framework that has essentially four components to it. So we've got the change in car ownership, connected car, electric suffocation, and then autonomy. You're out there talking to dealers or these kinds of things on their mind or it sounds like, you know, some of the reports you're putting out are more tactical, you know, like how do you do advertising in the franchise level and that kind of thing.

Jeremy: Yeah. So you certainly touched on a lot there. Some of those what I would call very let's say high level trends, but essentially that's what they are probably still very far away, not, you know, on the, on the top of mind issues for dealers. I think dealers right now are more concerned about things like margin compression. Where for the first time since the great recession, the operating profit of the average dealer in 2018 was a net loss. Dealers are concerned about vehicle affordability. Vehicle prices are an all time high today, making them financially out of reach for many consumers. In fact, the average new car buyer is age 54 and has an income of $122,000 a year. Compare that to the rest of the U S and it's easy to see a tremendous delta in income. And NH dealers are also concerned about the effect of consolidation.

Jeremy: Consolidation means that there's less and owner's going to be in the automotive retail space between now and 2025 and more dealerships are getting gobbled up into larger groups. So whereas we have an estimated 8,500 owners right now, within the next five, six years, we're probably gonna see about 6,500 and that's going to give a further economies of scale to some of the larger groups some of the publicly traded and also some of the privately owned dealership groups that may further jeopardize the small mom and pop mom and pop independent store and doesn't have access to the scale economies that would be associated with the larger group. So these are some of the issues that our dealers are really concerned about. And, and I would add that the, the biggest is the fact that more so now than ever before, automakers control the profitability of dealerships via incentives.

Jeremy: So what we've seen here is that while the operating profit of dealerships in 2018 went into the red, again, this is the first time it has since a great recession dealerships are still profitable for as a net profit. Okay. And the reason for that is because of automaker incentives that favor dealerships to engage in certain types of activities that the manufacturer incentivizes. So that can mean investing in, in a project to improve the look and feel of the dealership. That can mean, and most most common, it means meeting certain sales quotas. So dealership may sell a cars for loss. Actually, it's quite common now, net profit. In fact, most new car price departments in the u s or dealers are not profitable. So dealerships will sell cars for a loss and then make up the money at the end of the year or maybe every quarter, every month through income incentives that come from the auto maker.

Jeremy: And so when you have a dealership that loses money that that will be unprofitable without making sure that it does what the automaker wants. It's kind of a kind of a major concern, frankly for dealers. And another term for this would be stair step programs. It's kind of all similar, all group together where dealerships are concerned about how these these trends are going to ultimately affect their ability to, to grow and, and make money and, and, and survive just over the next five, six, seven years. I don't think anything cataclysmic is going to happen, but these issues are, you know, really what's on the top of mind for, for dealers as far as what you're talking about with I mentioned earlier rather autonomy and electrification. Maybe we can dig into each one. Depending, depending how, you know, like a brush on, yeah, I'm a, I'm a, you know, total newbie when it comes to dealers. So I imagine dealers have essentially three lines of business. They've got new cars, used cars, and then kind of the service area. I guess finance kind of fits in there. And, you know, that's Kinda like maybe maybe it's kind of, I kind

Scot: Of imagined it being this horizontal between the new and used car sales. How, so if they're not making money on new car, do they make enough on the service and the used car to make up for that?

Jeremy: Trying to, yeah, they're, they're definitely trying to, so what we've seen over the past few years is that dealerships continuing to invest more of an emphasis on service and parts. There's been nearly a 49% growth and sales between, I believe it's 2010 and 2018 in dealership service departments and parts department. So really a tremendous amount of growth there. There's been tremendous amount of growth in FNI where dealerships are making more money on selling things like protection products vehicle service contracts, in fact, penetration for theoretical service contracts, et Cetera, and your all time high. And they're also looking at used cars. So one of the the topics that's come up over the past over the past couple of years at these used car summits that Cherokee has the same organization that runs ais is that dealerships continue to figure out how they can be more competitive in use cars, how they can more quickly turn inventory because they see that as a profit center. So dealerships definitely are looking at other profit centers to make up for the fact that they're not making it in new cars. And then also they're looking for ways to cut back on expenses. Expense reductions always been a big area. Frankly, sometimes it's difficult for dealers to be able to master it, but you know, it's always always a way to, to cut back if needed.

Scot: Hmm. If if there's a pie chart at a dealer between those three lines, how much is new cars used? Cars and services it pretty equal or service like a small slice and yeah, so,

Jeremy: So it varies. The absorption rate, which is basically looking at the service department's profit as a percentage of, of the dealership's overall profit can vary significantly. And so rather than give any general stats cause it can vary by franchise and also size of, of groups. I would say that the service and parts is probably the number one area that, that dealerships are looking for in terms of profitability in terms of a department. And then, and then, you know, it's depending on what the penetration is with used cars and depending on what FNI looks like those could be other priority areas. But I would add that the new car incentives or the incentive income that comes from selling new cars is technically considered below the line. So it's not actually being put into the new car department, but the new car department is what generates that incentive income. So you could say, you know, you can make the argument that the new car department is, is, is the most important department because it's what's, what's keeping the dealership afloat, right? And now that, that negative operating profit, but the way dealerships look at it in terms of where they compartmentalize what's happening in each department, they'll say, well

Scot: Incentive income is something else interesting. I hope that makes sense. That's very helping by a, I've been dying to ask someone that and you're the only person that's been able to answer it. So kudos. So then it seems like the, the one that's most on the horizon, I get the, you know, avs you can kind of push off and say, ah, yeah, who cares? That's like 20, 30 kind of thing. But it does seem like these changing ownership models, you know, with Uber and Lyft going public and really kind of ride sharing is a thing now. And then now there's more and more car sharing out there. You've got Toro and get around really kind of strange or mixed the million dollars days. There's some real dollars there. Is that starting to weigh on, on the minds of, of dealers? So, so the short answer to that is, is

Jeremy: No in the u s okay. Car sharing in the u s right now in terms of taking ownership away, personal vehicle ownership a is very, very insignificant. We don't, not that we, we and as well as many other professional organizations have reached consensus like car sharing in the u s it's probably not going to affect personal car ownership in a significant way in, in either now or in the next five years or 10 years. In other markets maybe like the UK and in other markets where public transportation is more readily available, where car ownership is not as, as affordable as it is in the u s as well as just also the desire of the population to own vehicles. You may see a rise of car sharing. Of course, there's a funny story about how the Japanese are adopting cars, Sha sharing to sleep in the cars.

Jeremy: More often than not, they're not even using the cars. They're just sleeping in the cars. It's actually funny that their apartments are so, yeah. So they still like a way to get out in the middle of the day and take a nap. But I mean that car sharing is one issue or one trend at that won't have an effect on ownership based off of what we've seen. Ride sharing, you know, using the Uber's and the lifts that May 1st for some people who live in the city. But the actual result is, is, is that it's increased vehicle ownership because now you have these drivers that are going around buying vehicles so they can drive and, you know, for whatever ride sharing fleet it is that they drive for. So it's actually resulted in a, an benefit. I think most people that the economics work for ride sharing generally it's, it's, you would have to be driving under 3,500, 3000, 500 miles per year in order for ride sharing to be more cost effective than vehicle ownership. And for most for most drivers they're driving way past 3,500 miles. So, so the, you know, the investment banker that lives in Manhattan that had the Mercedes s five 50 in the, maybe for him ride sharing works, he doesn't need that big expense anymore. But for most drivers in the u s they still need, they still need a vehicle.

Scot: Cool. How about so one of the big topics of the show seems to be, and this is probably in our both of our wheelhouses giving, giving the auto buyer more of that e-commerce type experience. So you've had Carvana come in and really kind of disrupt the used car market and then a lot of the topics here at the show are, how do you give that e-commerce like experience at the dealer? Is that, that is that more top of mind with, with folks?

Jeremy: Yeah, it's, this is something a that we covered in our advertising study that we published earlier this year, which I'll add is on our website if anybody wants to download it. And what we found is that pretty much every dealership group is experimenting or fully entrenched in what we call digital retailing where they'd actually sell a vehicle online. There are different flavors of digital retailing. There are different vendors involved. There are different things that some dealerships are willing to do as it relates to selling online that other dealers aren't. There's different regulations and teach in each state as well that that sometimes prohibit online retailing and, and sometimes they don't. So it's a, it's definitely still an evolving space from talking with dealerships that are successful with digital retail. And what we found is, is that the only way it really works is if you fully embrace it.

Jeremy: And so what I should add that when I'm talking about digital retailing right now for the purpose of this conversation, I'm talking about a dealership fully selling a car online. So someone goes to the dealership's website, they see the price that they're going to pay for the car, they put their credit information in, they upload their driver's license, their insurance card, and the car's delivered to them. That's to me is 100%. That's digital online, you know, digital retailing or however you, you are comfortable in defining it, but kind of the true Amazon like experience. And that's very, very, very, very insignificant amount of cars that are being sold that way. But for the dealerships that are doing it, that one of the things that they've had to do is really change the culture in the dealership to be able to have their model adapt to a customer coming into the showroom and seeing a price online that is going to be the same price that they're going to pay for it.

Jeremy: So there's no conflict there as well as being more transparent and being comfortable with that transparency. For example, giving away or rather than actually giving away, but being more upfront about different rates for, for FNI or for packages or any type of options being way more upfront where in the past some dealerships don't want to do that. They would prefer to embrace more of, you know, come to the showroom and we're going to, you know start at one price and we'll end up at another price and negotiate with you the dealership set that want to be successful. Digital retailing, have to go with the model of, we're going to put, just put it all out there and be total transparent. And not all dealerships are ready for that cultural shift. I mean that's a major shift. You know, you have pay plans involved where you have a staff of dealerships that are incentivized to to increase or maximize the gross.

Jeremy: So if you have a model that just puts it all out there and doesn't really allow room for negotiation, you have now these, these people that may work for a dealership for 20 years that have a totally different pay plan. And so how do you account for that? So these are some of the challenges. It is very interesting. I think that a lot of consumers, especially new car buyers you know what I mentioned the average age being 54 still want a test drive. They're still not ready to buy a car solely online. Some are, but not all of them. They still have, they also have high credit scores and high income. You know, Carvana is a different business. Carvana just sells used cars. Carvana has a great brand proposition. And that proposition basically tells consumers that are going to get an upfront and easy experience.

Jeremy: And so they in Carvana facilitates that online. But again, most franchise dealers are selling new cars, they're selling cars especially for new cars to a higher generally a higher fico segment of, of the car buying population as well as offering things like leases and things like that. So it's just, it is different, but dealerships again, are adapting based off of what consumers want and the technology is there. Now again, as I mentioned earlier, in some states, there may be regulations that may prohibit a dealer from fully selling your car online, but there's a lot, a large percentage of the transaction that can be done online. And, and that's probably where most of the benefit right now is for consumers. So instead of having to come to the showroom to let's say find out what the price could be on a specific a unit or even the consumer can do that remotely via the dealership's website.

Jeremy: They can review FNI options remotely and they can also upload maybe their credit application or driver's license. So when they come to the showroom, what would have been maybe a four hour, five hour experience can be maybe an hour. And so that's again, that's where the big benefits have been and we'll continue to see this space evolve. Yeah, I bought a car was with no financing. It took three hours. It was crazy. Yeah, I told him all he had like an hour and there's still drug it out three hours and this area, and frankly it's, it's a lot of times it's just, it's just, there's just so many documents that need to be signed. This the, I bought a car via a fair.com which is a subscription service. I did a trial earlier this year. I bought the car from fair via my phone, not from the dealership when I got to the dealership.

Jeremy: This is in, this is in New York, I should emphasize and we have a lot of regulations in New York. I had a sign at least seven or eight different pieces of government mandated paperwork and you know, it was, you know, sign the environmental form and use car warranty for and all these different forums and things. I frankly never, not even related to, to really having a practical purpose for me being a subscriber with fair, but we're still required. So, so dealerships are doing their best to, to get around some of these issues and evolve. Cool. well I know you're super busy. Last question if folks want to find you online, do you obviously they can go to the website and find the research, but do you, are you active on Linkedin and Twitter? Yeah, so I, I'm, I'm on a, I'm on Twitter, I'm on Linkedin.

Jeremy: It's, it's my name. There's only one Jeremy Alicandri. So I assume, I assume when you publish a description for this, you'll spell my name and shine shyness and they can also go to Marianne keller.com and on that website they'll be able to download our thought leadership, including our dealership advertising study, which goes into more details on digital retailing as well as some of the other trends occurring in that dealership advertising space. 

Scot: Cool. Thanks for joining us today, Jeremy. This has been super insightful. I learned a ton about the dealer space and look forward to seeing your talk tomorrow with Costco. 

Jeremy: Great. Thank you. Thanks for having me.

EP017 - Founder/CEO and VP of Sales & Business Development at Rodo, Nathan Hecht and Patrick McKeever

http://www.vehicle2.getspiffy.com Episode 17 is an interview with Nathan Hecht and Patrick McKeever, Founder/CEO and VP of Sales & Business Development at Rodo, respectively; recorded live at the Automotive Intelligence Summit in Raleigh, NC on Wednesday, July 24th, 2019. Scot and his guests discuss a variety of topics, including:

• The founding of Rodo as “the cheapest and easiest way to lease a car on the planet”
• How the Rodo app connects customers with the vehicle and lease price they want
• The challenges of Rodo expanding their dealership network and customer base
• How the current digital shift impacts car dealerships and who will survive the impending drop in new car sales
• Subscription services as a fusion of leasing and carsharing, and their potential for growth moving forward

If you enjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.

This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.

 

Transcript:

Scot:    Welcome to the Vehicle 2.0 podcast. We are at the 2019 automotive intelligence summit here in Sunny Raleigh, North Carolina. It was rainy yesterday. So you guys are getting to experience the, the real Raleigh. It's July 24th. And we're really excited to have on the show. A couple of folks from Honcker. They're from Manhattan, so excited to have folks from the big city down here and in Mayberry of North Carolina. So we have Nathan Hecht. He is the founder and CEO. Welcome.

Nathan:    Thank you. Thanks for having me.

Scot:    And he brought along his partner in crime, Pat McKeever, who is VP of Sales and BD.

Patrick:    That's well said, Scott. That's correct. Thank you.

Scot:    Also in our pre discussion in charge of keeping Nathan out of trouble. So it's good to have a,.

Patrick:    That's my main job actually.

Scot:    You go with, come with security.

Nathan:    He's not kidding.

Scot:    Uh so Nathan, tell us about you know, the founding, I'm a fellow entrepreneur, so I'd love to hear the founding story and all the background on yourself and how you got into this.

Nathan:    Sure. Thank you. So the founding of the company is actually real interesting. It was actually from a personal experience in trying to lease a car in New York. I went into a local car dealership and basically went through the runaround of trying to choose and price of vehicle for a monthly lease. It took about five hours to ultimately realize that I don't, I don't even think I'm going to take this car after, after this whole experience and during, during the five or six hours that I was in the dealership I was searching for a way to do the same thing online and quickly realized that there was no way to do a new vehicle transaction on the Internet. And in my case specifically at least. So at the end of that day did a little more research and I I committed to trying to do this and that's how the company started and as they say, the rest is history. Cool. How long ago was that? That was about two and a half years ago. Half years ago. Cool.

Scot:    Awesome. And then Pat, how do you intersect into the story?

Patrick:    Oh I had met Nathan from a previous my previous place of work where we played in the, in the automotive data dms data space and actually had approached Nathan had learned about the company in today. If you have a need for dms data, we can help you. He said, no thanks. But we kept in touch and at that point kind of kept an eye on him and he was starting to get some, some traction, a real traction and I immediately saw sort of the need or the hole if you will.

Patrick:    There had been other services out there that could present a savings to the consumer, but at the end of the day, and I'm a huge leasing fan, both of my cars are currently leased and have been leased for the last 10, 12 plus years. I saw kind of the fit immediately. So we met in Brooklyn about a year and a half ago and I think I made an offer at that first meeting. I'll pretty much maybe the next day. I think it was the next day. We, we had a really good sort of connection where similar but very different at the same time. And we work well together. So it's been a, it's been a blast. It's all, it's been about a year and a half. It feels like 10 years, but but it's been an awesome ride so far.

Scot:    Awesome. So I, I also have a lot of co-founders and partners. Usually I'm described as the arsonist and they're the firefighters that kind of what you guys have going on here, probably like the fires you get to put them out.

Patrick:    That's pretty well said. Yeah. Yeah.

Scot:    So Nathan, you had the idea you wanted to solve this. So give us kind of some highlights. Over the last two years,

Nathan:    I knew nothing about car leasing, car financing almost zero about the overall industry. I actually was an investor in a, in a solar panel integration business right around 2008. After I sold my previous company and one of the companies that we did this solar panel array for was a very large Mercedes Benz, Mercedes Benz dealership in Queens. And the owner Michael Cohen was just a really friendly guy and as I started to think about this business, I said, who do I know in auto? And I knew nobody. And I said, okay, well I'll reach out to this Guy Michael Cohen. I went to one of the operators of that business that I was in investor and I said, can you make this introduction? He said, sure. I met Michael and I told him about what we were doing and I'll never forget it.

Nathan:    I think this is the first time I'm actually saying this publicly. We were sitting around his board table and he goes, you sure you want to do this? And I was like, no. He goes, I'm warning you. This is really, really hard. And I don't, I don't even know if anybody can solve it. And by that he meant providing an accurate monthly lease payment for a consumer in real time on an app and then actually giving the consumer the Amazon experience of completing the transaction. And that just fired me up and I was like, Yup, I'm going to do this. I had already spoken to my team that was working on me with something else and I said, we're going to sort of pivot into this. And again, most of the team were actually based in Israel engineers, developers and so on.

Nathan:    And they were like, Carly seeing what there is no car leasing there. They had no idea what I was talking about. And we just dove into the deep end of the pool from day one and started to figure it out. And Michael made some introductions and very quickly learned how this works. We understood, but we, we started to focus on, on the, on the technology side of it and we then focused on the brick and mortar side of it and then the consumer side of it and so on and so forth. And slowly over time things started to come together. And finally we needed to sign up a few dealers because we're a marketplace. And I was like, okay, so this is like an entirely new beast. How am I going to do this? I'd never come in, you know, face to face with a, with trying to sell something to a, to an owner, principal at a dealership.

Nathan:    And myself and my creative director said, you know what, let's do this. We took screenshots of the app, we put them onto a big whiteboard type of placard and we printed them. And I walked into these car dealerships in Brooklyn, New York, a a fine Jewish kid with the Omnicon has had into these car dealerships. And I said, can I speak to the owner please holding up this big placard of screenshots of an app? And they was like, you need a car, can I help you with a Honda? And I was like, no, no, no. I want to show them something. And believe it or not. Some first general managers came out and they looked at it for a mint and they said, what are you selling? And then I eventually got to own our principals. They looked at it, they immediately saw the value prop and what we were doing and how different it was. It was available on the Internet at the time. And some of the largest regional dealer groups in New York and New Jersey and Connecticut signed up very, very quickly once they saw the value prop. And then we slowly grew from there to where we are today over a thousand dealerships and approximately 15 markets and hundreds of thousands of consumers using the app. And it's still really, really early days. So there's a, there's a long road ahead.

Scot:    Awesome. So so I'm gonna ask a bunch of Newbie questions to make sure I understand. So you guys go into the dealers are you competing with their alternative leasing thing or are you partnering with that? We're part, we're completely partnering with them. So, if I'm a Mercedes and I have a Daimler finance thing that's doing the lease, you guys partner with those guys to make it easier for the consumer. You're not, you're not competing with example. 

Nathan:    So we’re a marketplace where there’s the dealership on one side offering their vehicles and their consumers on the other and our technology right in the middle that sort of makes this an incredibly fast, seamless lease transaction without ever talking to a dealer without ever walking into the dealer. So we're really the first company to take what is normally such an arduous brick and mortar process and, and turn it into a seamless online experience.

Scot:    Do I have to be kind of like outside of the dealership to do this or can I be in the dealer using the app?

Nathan:    You can be anywhere is when, as long as you've got Internet you know, and you can download the app or go to the website. You can be anywhere you want.

Scot:    So I go to the dealer and I say, I want that car. And then they say how do you want to finance it? And then if I choose lease, then I have to download your app.

Nathan:    No very different. So we're like imagine you wanted to buy an airline ticket and you went to Expedia. So you'd see basically an aggregation of all of the airlines and flights. If you were flying from let's say JFK to Raleigh and you'd see a list of flights and prices next to it, it's essentially a marketplace for airlines and for hotels and what have you. So we do the same thing. You don't need to go into the dealership, you download the app or go to our website, you type in the vehicle that you're looking for or the vehicle type. And you will see actual vehicles from dealers near you with pre-calculated monthly payments that are probably unbeatable as far as price goes.

Scot:    I gather enough information about me that you're using that as an input into the underlying credit scores and all that kind of jazz. Exactly. So when you register,

Nathan:    We gather some personal information on you. And then behind the scenes were taking all of the necessary industry data about the vehicle from the dealership. You know, from the manufacturer, so you know, you know, rebates and incentives that may reduce your monthly payments and reduce the selling price of the vehicle or what have you. And in real time in the background, we're calculating all of that to show you a monthly payment with an actual due at signing and you shop the way you would shop on a regular ecommerce site. You choose what you like, you put it into your cart, you place the order, you upload your driver's license and answer some credit questions. The dealer then gets that transaction, that order, and they process the order for you and deliver the vehicle to you the next day.

Patrick:    Oh, so I don't have to sit there for 12 hours telling them a million times. I don't need this.

Scot:    Exactly. Exactly.

Patrick:    Wow. That's awesome. So you've kind of taken that Carvana level experience, applied it to leasing. Okay. I got it. I didn't, I didn't realize this direct to consumer on the front end. That makes a lot more sense now. Yeah. Cool. And then the so, so padded, it sounds like dealers are gobbling this up. Is it, you're just essentially an order takers? Am I understanding that?

Scot:    I wouldn't, I wouldn't call it order just yet. We've got a, it's my favorite thing to say. It's got a lot. Hilary entailed interests, great dealer in that interest.

Patrick:    We've got, we have built a good sales team that is, is literally boots on the ground knocking on doors, you know, very similar to what Nate did in the very early days. But yet to your point, we've got five of the 10 largest national auto auto dealer groups on the platform today, including Lithia and Asbury. So there the dealers are seeing the value pretty quickly when we, you know, have 10 minutes to sit with a dealer, principal and owner GM. Because really for, for them it's a similar experience to a consumer where by the time we pull a dealership into the fold or alert them on a, on an order, it's a VIN-specific structured lease with a driver's license and a credit app. So it's essentially here, Mr Julia, here's a silver platter, confirm inventory, get the credit approved and we're off and running. So it's a really pretty hyper efficient process for both consumer and dealer. Yeah. Awesome. So I looked at crunchbase. Looks like you've raised according to crunchbase, they're not always right at about $30 million. Yup. Tell us a little bit about the, had you raised venture capital before? Is this your first venture back to business?

Nathan:    I had raised early stage venture capital in the past in two previous startups that I founded. And in this specific instance we've raised just under $30 million to date in a friends and family seed round and then a series a and

Patrick:    Do series a series a in North Carolina was like $1 million.

Scot:    Okay. It's a bay area. Susan.

Nathan:    We did a, our series a was 23 million. And actually it was interesting because we had a lot of interests a lot of inbound interest. And then one company took the entire series a IAC, which is the a, which is a, a media and, and a technology conglomerate out of New York City. We're very lucky to have them as investors. At this early stage, they just invested a big chunk. And Toro I saw that. Yes, they just invested about a quarter of $1 billion in Touro.

Scot:    Nice. Good. You can get get series being wind up. The so it seems like you're at the sweet spot, so you're kind of like, you're in this, you're you're, you know exactly what investors are looking for. So you're, you know, don't have a lot of employees or marketplace. You're a Fintech, you kinda check and then you're in the auto category. So you're, you check a lot of boxes there. Congratulations on figuring that out.

Nathan:    Thank you. I, I can't take all the credit for that. And I also would say investors will never tell you you're exactly what they're looking for. We were lucky enough that, that things sort of clicked for the, for the right investor group at the time that we were looking for capital.

Scot:    Cool. So, so I get the supply side and the dealers are there. Do they help you bring consumers into the app or do you have to promote the app yourself?

Nathan:    We have to promote the app ourselves. And that's not an easy task. As you know, customer acquisition is is difficult, especially when they're bombarded with, with so many ads and so many people, so many companies trying to get their attention at the same time. So we're out there, you know, grinding every day for recognition.

Scot:    So you're doing the traditional Google and all those kinds of aspects. Yep. But I'm an internet marketer at heart and so while you may have a high CAC LTV of Elisa's, like pretty substantial, which was helps on the front end of that, right?

Nathan:    Yeah, that's exactly, that's exactly correct. There is a very large LTV, even if, whether it's one lease or the lifetime value of that consumer, if they start leasing in their mid twenties and they listen to their seventies yes. While the CAC is hefty right up front, there's some fantastic payback over the long term.

Scot:    Awesome. Cool. So I think that's super helpful to kind of frame the rest of the discussion of kind of going up to 30,000 feet and you're, you're in the thick of it. In the vehicle 2.0 podcast, we talk about connected car changing ownership, Evie Nav. I'm going to spend the bulk of our time on changing ownership cause you guys are Kinda like, you know, sitting right there and in the sweet spot of that. Do you the big trend right in your space is this subscription kind of model. It seems like that would be a natural kind of element for, you know, so you have some people looking at subscriptions, kind of almost like a rental model and then others kind of extending a lease and kind of providing some flexibility inside of Elise w you have any kind of point of view of where we're going to go as far as ownership.

Nathan:    I think subscription as a category is a very interesting category. And there's a ton of opportunity there and there are some significant players already that are getting customers and traction and funding and so on. But the economics behind that are still a bit foggy, if you will. A lot of it is around used car vehicles. A lot of this credit, credit risk there. There's inventory risk. You know, there's, there's a, there's a tech risk there is how do we value the residual value of a vehicle if a consumer uses it for a month and then returns it and then I need to release it or resell it and so on and so forth. So it's an interesting category. It has a future, no doubt. But I, I would, I would compare it to, you know, web 1.0 mid nineties when sort of e-commerce was just trying to find traction.

Nathan:    Travel was fine trying to find traction. There were a lot of companies that fell out and failed in trying to, you know, figure this stuff out until ultimately it was figured out and you have the you know, those that have succeeded. So that's possible that, that will happen here as well. But it's certainly a category that we keep a close eye on. And in what we're doing in particular we're thinking about these things as well and we're trying to make the, the, we look at ourselves as sort of an ecosystem for if you're going to have a car in your driveway, where did you get it? How did you insure it? How are you how are you servicing it? What are you doing with it when you're not using it? You know, can you capitalize on that? Can you make money on it? How are you paying for it and so on and so forth. So what be it, subscription or modernizing the transaction slash ownership you know, s [inaudible] and everything else that goes around it. It's really interesting and it just needs, it needs hard work, execution capital and time to prove it.

Scot:    Does two goods, consumer to kind of download your app and they're active in there. You know, you don't want them to just kind of come back four years after the lease is over. So. Exactly. So I can imagine you guys have a lot of ideas around how to extend that. Precisely. Yep. Interesting. So, so pat, you're out there calling on dealerships. Are they, are they so distracted by these changes going on that they don't have time to think about something tactical like, hey, how do I make leases better? Or, or is this really, they're so transactional driven that you can get their attention?

Patrick:    Yeah, it's a bit of both. So they're certainly transactional, right? Where they're still, depending on the audience, also still a bit shortsighted where they're worried about today, this week, what does my month look like? I gotta I gotta move units. Which is good. They're also, they're also aware of what's going on in the space, but I think a lot of them just are a bit I don't want to say confused, but there's so much, they hear so much and they have so much stuff thrown at them that they don't, many cases they just don't know what to do and what, how to do it and how to change the process in the store. This, some of the stores that we're working with, they're really super successful with us. It honestly just comes back down to the people in the store, right? So there's a great store outside of Philadelphia that we use sort of as our poster child. There's two people in this store that take honker orders all day having, I mean every day long and they're moving 20 plus units a month through us. And that's been consistent for the last year and a half. It's at Chrysler Dodge jeep store and it really comes down to their process and the

Scot:    And they, they, they were very progressive and came on board very early on. So I think some dealers are still sort of catching up. Some are ahead of the curve. It really comes down to the ownership. And how kind of plugged in, they are really cool. One thing that we've seen in the ecommerce world as a marketplace, we'll come out and do some really innovative stuff and then the rest of the world it'll, it'll kinda raise the bar and then the rest of the world has to kind of react. Yet if you guys felt that where the traditional dealer is now feeling, you know, because you've created this seamless experience I kinda liken it to the Starbucks app. Like would you use the Starbucks app and then you forget to use it and you're in line buying two people and you're like sticking a needle in your eye. You're like, well, I forgot the Starbucks app. So then I imagine you're going to cause the whole leasing thing to get easier at dealers over time. Are you starting to feel that happening?

Nathan:    Absolutely. I, I'd say from the consumer side for sure. I think it's it's fair to say that once a consumer has leased the car through our app, they will never do it the old way. So that's for certain, once they experienced this, this this digital experience on the dealership side as well. I think to Pat's point, the dealers that are embracing this and putting resources behind that and realize that this is the future, just love it. You know, and they, they, they rave about knockout deals in, in, in a few minutes and, and, and so on. And so forth. So yes, but again, to be clear, it's still very early and there's a lot that we have to prove and still a lot of adoption necessary.

Scot:    Cool. I know you guys are busy out there conquering the world. So final question. If folks really want to learn more, obviously they can download the app and look at some leases that, that seems to be like an obvious one. But then maybe online. Do you guys, other than the honker website, do you guys publish any thought leadership or active on Linkedin or Twitter, any of that kind of stuff?

Nathan:    Very active on linkedin and Twitter. And other social media platforms. The Honcker.com is now Sim similar to the app. You can do a transaction, you don't need to download the app if you don't want to. Most of our customers prefer to, to transact through the app. And yes, there is some thought leadership. There is a blog where we're posting stuff too on okr.com/blog. So there's a, there's a lot out there and we encourage engagement. Feedback and other communication. We've learned more from, from listening and being attentive to our customer base and our dealer base and the broader industry than we could ever have possibly figured out on our own. So we encourage our consumers, whether they've done a transaction or not, or just browsing or otherwise have thoughts to reach out and, you know, tell us what you think.

Scot:    Awesome. Nathan, Pat, thanks for joining us.

Nathan:    Thanks so much. Appreciate it.

EP016 - Automotive Research Leader at Deloitte, Ryan Robinson

http://www.vehicle2.getspiffy.com

Episode 16 is an interview with Ryan Robinson, Automotive Research Leader at Deloitte; recorded live at the Automotive Intelligence Summit in Raleigh, NC on Wednesday, July 24th, 2019. Ryan and Scot discuss a variety of topics, including:

• The digital transformation of the car buying experience
• How declining consumer confidence in autonomy has created a cooling trend 
• Common use cases for AVs, such as geo-fencing in cities
• The electric vehicle battery of the future: is it lithium ion?
• Measured impacts and projections of ride hailing and carsharing
• The potential for connected car as a revenue stream

If you enjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.

This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.

 

Transcript:

Scot:    Welcome to the vehicle 2.0 podcast. Today we are recording live from the automotive intelligence summit. And we have a real special treat for listeners. We have here live on the show, Ryan Robinson, and he is from Deloitte where he is the automotive research leader. Welcome to the show, Ryan. 

Ryan:    Thanks Scott. Yeah, glad to be here. 

Scot:    Cool. Well, let's start off. I would love to hear, you're obviously deep in the auto space. Would love to hear a little bit about your career path and how you ended up in this space.

Ryan:    Well, it's, it's a, it's a bit of a long story. So I started off with a kind of a boutique consultancy in the automotive sector in Toronto, in Canada where I'm from. And from there I moved on to a pwc where I did some vehicle forecasting work on the sales and production side in Detroit. And then I got a chance to move back to Toronto with JD power and I was with them for eight and a half years before I got an opportunity to join Deloitte. So that was three and a half years ago. So it's a, been a bit of a whirlwind.

Scot:    Awesome. So we've you know, we've, we've read a lot of your, your research and it's been really helpful for us. Kinda, I'm relatively new to the auto industry, have obviously had a car for a long time, but my, my previous life is e-commerce. So I'll also, it's interesting that Deloitte cuts across both. I can kind of like feel the, the influence there of kind of, you know, understanding digital, you know, coming from like the retail world that I like. I do. Then you guys are pile out of that to your research on, on the auto side, which actually helpful. It's helpful for me, at least audience of one at least.

Ryan:    So I sit inside a a thought leadership center here in the U S and I've got a counterparts that that, that cover off on the retail space consumer products and and also the travel and hospitality sector. So, you know, we get together on a, on a very regular basis and we're always looking for kind of synergies to kind of crossover our research. And and I think that's, it's actually a good a segue to get into, you know, what I think is happening in the auto space particularly with where the consumer is concerned. Cause I think there's, there's a lot of crossover and convergence when we talk about how consumer expectations are being taken from one sector over into another. So, and I think it's having a, a pretty dramatic effect on how vehicles are, are a retailed going forward.

Scot:    Yeah, let's jump into that. So a, I'm a big fan of the research that talks about the value oriented consumer into convenience oriented consumer. My e-commerce buddy Casey Luba over at Deloitte talks a lot about that. The cost, the bifurcation and then as it is, are you seeing that, you know, we've, you know, so Carvana for example, has made it insanely easy to buy a car. It kind of applying that e-commerce level of experience to, to that.

Ryan:    Yeah, I mean certainly there's, there's a level of of digital transformation that's impacting the, the car buying experience. In terms of the, the retail bifurcation analysis. It's, it's a little more difficult to, to think about it in the automotive context. Cause for a number of reasons, one, over the years there's been a, a real a real significant shift down market from some of the luxury brands to, to try to attract and, and discover new customers, if you will and get them on their, their product ladders. There's also a lot of a lot of segmentation or sub segmentation of the consumer basis caught on. So to try to identify you know, what, what would be a a pure kind of budget brand versus a luxury brand. It's not so clear cut anymore in in, in order to apply to, to, to that kind of analysis. So I'm a bit different.

Scot:    Okay, cool. Well, here on the vehicle 2.0 podcast, we have a framework where we talk about the four big changes coming to vehicles. So we have changing ownership, connected car, EV and AV. I'll, I'll give you kind of, you know, spin the wheel and pick your favorite topic amongst those are you know, we'd love to hear your thoughts on, on those. Yeah, for sure. Sure.

Ryan:    So so we should, we can dig into say the autonomous space first. And we, we do a a global consumer survey. Every year we talked to, last year we talked to this are they, I should say this past year we talked to about 25,000 consumers covering off on 20 different countries. And we asked them a variety of questions around some of these, what you might call the case technologies, right? And in terms of the autumn the autonomous space, something very strange is happening. I think on the one hand, when you, when you see technologies coming into view for the consumer, as they get more information about them as the as they get more comfortable with them you tend to see consumers really gravitate towards them. And our data is telling us something quite different. And we think it's got a lot to do with the, the small number of of accidents involving autonomous vehicles in the last 18 months to two years.

Ryan:    Considering that we're in a space now where the ubiquity of of social media and the echo chambers that get created around some of these topics it doesn't take very many of these you know, sometimes very tragic incidents to, to really have a, a negative impact on the consumer psyche overall relative to that technology. So as far as the percentage of consumers that don't think the technology is going to be safe it's it's actually flattened off, actually leveled off a year over year from where we were last year. So I think it's a, it, it's indicative of a bit of a cooling trend. The consumers are really taken a second thought on this, on this technology and whether or not they're really bought in going forward.

Scot:    Yeah. So That's interesting on the consumer side, when, when do you think the technology will be ready? Do you have a point of view on that?

Ryan:    Yeah, it's, it, you know, for as many people that that talk about this, this technology in the space, that's probably how many opinions you're getting to yet. It's interesting though, if you're, if you've been going to the consumer electronics show like I have for a number of years, it's fascinating to me how that conversation has changed, or at least the tone of that conversation has changed. So two years ago, for example, even as, as recently as two years ago the, the, the messaging was, you know, this is, technology is right around the corner. You better get ready for it because, you know, it's almost here kind of thing. And now I think we're starting to get just this past January a lot more maybe realism being injected into that conversation. So you know, I've, I've been hearing you know, thoughts around 20, 30, 20, 35, even 20, 40 before we start to see, you know, any kind of a real penetration for that technology.

Scot:    Interesting. Yeah. And I saw at ces this year, a lot of the, it went from a kind of a general use case to very specific, you know, this could be on a corporate campus, this could, you know, there's a lot of talk about long haul trucking. So, so it seems like they've pruned the tree down from, you know, any point a to point B to very specific use cases as well.

Ryan:    Yeah. On the one hand you, you, you have those kind of very specific geo-fence kinds of applications which I think are fine. I mean if the, if the, if the location that we're talking about is very well mapped it doesn't, it doesn't change very much. In terms of the in terms of the, the routing and things like that sure. I think that makes it a lot easier to, to find a use case for it. The thing about long haul trucking I've always been of the opinion that that would be a very good use case because it, it really does cut down on the number of variables involved. I mean everybody is going in the same direction. Everybody is, you know, going at it at relatively the same speed. All you really have to do is figure out kind of the last mile when they get off the, the highway itself.

Ryan:    But when you ask consumers whether or not they're comfortable sharing the highway at, you know, 65, 70 miles an hour with, you know, a multi ton vehicle that's driving itself, you know, they're, they're actually quite skittish about that reality. Yeah. It's hard to ask that question in a positive way. Yeah. Yeah. Interesting. Cool. So how about electric vehicles? Do you see that kind of being closer on the horizon? Yeah, I mean, on the other side of the, of the technology coin I guess is, is electrification. And, and you know, we, we look at it as a bit of a spectrum. So, you know, electrification could mean, you know, anything from hybrid to kind of full battery electric. But the, and I think it's a lot closer in, in terms of you know, when, when we're going to start to see you know, a lot of that critical mass getting achieved, but it's not going to be a rising tide lifts all, all boats kind of scenario where, you know if you talk about it from a geographic standpoint certainly markets like China are are very aggressively following a a path that will take them to, to critical mass of electrified or electrified vehicles a lot faster than say, we're going to see here in North America.

Ryan:    And that's got a lot to do with the fact that, you know, they're very concerned about things like urban pollution. And beyond that, you know, it's it's, it's it's a very distinct decision that's being made to, to be a a global leader on, on, you know, the next generation of, of mobility. And I think that you know, Europe's gonna is, is starting to follow pretty quickly in the wake of the diesel gate scandal. There was there was a desire on the automaker front to kind of rebrand yourself away from, from diesel technology. And, and the the only forward-looking kind of propulsion technology that was in view at the time was, was electric vehicles. So I think that we're seeing a lot of, a lot of that in North America here.

Ryan:    We're still we're still lagging behind for a number of reasons that range from, you know, not quite as as strict a policy on environmental regulations to you know, what, what amounts to be still a relatively low fuel price environment. And also the type of vehicles that that we, we like to drive here are keeping us in that kind of combustion engine. A story for a little bit longer. Yeah. Do you think lithium ion, is the technology going forward or do we need some breakthrough new battery technology? They keep talking about some, some new battery technology and in terms of the kind of, the kind of materials that are being used, a solid state batteries are also, you know, obviously still being talked about. I think, you know, it really comes down while a lot of the discussion is around the, the dollars per kilowatt hour and trying to get that down into a range where consumers don't really have to compromise on costs to be able to get access to that technology.

Ryan:    I think that a lot of companies are taken and battery producers are, you know, hard at work trying to find that next step in the, in the development of the technology itself. You know, solid state is, is a great technology to think about in terms of the increased charge discharge time that would go a long way to consumers fears around or their concerns, I should say around the, at the time it takes still to refueler that electric vehicle. And if, even if it's 20 minutes to half an hour you know, that's still too long, you know, and there's also, you know, some safety concerns still with the lithium ion technology. If the batteries can puncture and you know, can start I think it's a terminal cascade failures or whatever they call it. And Elon Musk phase for splinting and, you know, solid state technology would help on that front too.

Ryan:    Or at least that's the that's what's being talked about. So I think there is another step in battery technology that we're going to get to. Very cool. How about different ownership models? Do you guys see, does ab kind of have to happen for that to change or do you see that happening before we get to full AAV? The ownership models, I think that there's, there's a couple of ways we can we can attack that topic. If we're talking about things like, you know, ride hailing models and things like that. I think that's how, I mean it's, it's been happening for, for a few years now. And, and I think that our data will, our data shows us just in the last couple of years that you know, there it was a very disruptive technology ride hailing itself. And I think it was, it was really born on the back of the, the, the digital interface that allowed people to, you know you know, call a ride and and see the ride getting to them.

Ryan:    And probably most importantly, being able to, to utilize an integrated payment system, digital payment system for that and that, and that really was very disruptive. But now, you know, the, the price of, of getting a very slick act cap out the door is coming way down. It's almost, you know, at a, at a commodity type level now. So that's not the barrier to, to entry that it once was in a lot of the disrupted, you know, traditional players like taxi fleets are reasserting themselves and getting their own app at the door. So I think that the the, the competitive landscape is, is, is changing quite dramatically on that front. If we talk about things like subscription models as a way to, you know, offer the consumer more flexibility or more choice. I, it's a great idea. I think it's a very, it's very promising. The, the only issue is, is around pricing I think. And I think that's, I think there's still a little ways to go in terms of finding the sweet spot to attract a lot of people to that model.

Scot:    Yeah. It all sounds good. And then you look at the prices and it's like, you know, $1,500 a month and you're like, so it's two to three x kind of like what you're currently paying. Right?

Ryan:    And it's, you know, there, we have to remember that there is there, there's, there's the specter of an affordability issue that's, that's growing I think in, in, in the marketplace. And particularly when it comes to younger consumers that might not have the, the kind of economic wherewithal that, that some previous generations had. There's also a lot more there's a, there's a lot more pull on from different sources on their wallets these days. I'm talking about subscription models. You know, it's not out of the realm of possibility that you have maybe upwards of seven or eight subscriptions for an everything from, you know, Netflix to, you know, your, your dry cleaning. And when you add it all up, people still have to kind of balance, you know, how they're going to get things done at the end of the day. So they have a budget for transportation and if they can, if they can fill that need with a, a bit more of a flexible arrangement, whether that's ride hailing or car sharing or, or whatever that is. And it keeps them out of having to, to get into car ownership, you know, I think that's attractive to, to a growing number of people.

Scot:    Yup. Cool. So then the last topic is connected car. That one can, you know, the, there's the tactical, I wanna use my phone, tax us to my car and, and you know, kind of get data from my car, but then there's kind of also taking that to the next level where that data starts to feed into city planning and those kinds of things. What do you think about connected cars impact the, the connection

Ryan:    Or is coming? And you know, I think it's a, it, it's a really interesting topic because on the one hand it's, it's a question of trust, right? So you have consumers that are, that are telling us they're very concerned with things like data privacy, data security even things to do with personal safety around connected vehicles is is a large topic for consumers right now. And on the other hand, you know, you have, you know, manufacturers and other types of, of industry stakeholders that are looking for different ways to monetize the mobility experience. So if we think that we are at some point and we can debate the timelines I guess, but at some point we're moving we're moving into a new business model where we're not necessarily just, you know, bolting cars together and selling them to end consumers.

Ryan:    You have to figure out what's, what's the next revenue stream, you know, connected cars and the data being generated off those cars. That can be very valuable for companies to in terms of, you know, just trying to, to take waste out of their own production system. There's applications for, you know, predictive maintenance and all of the things that come along with that. You know, there's also what you talked about in terms of how it can feed into a a smart connected urban environment or a smart city. We've still got consumer concern. We've still got, you know the traditional stakeholders that really are coming to the realization that it may not be in their set of core competencies to figure out how to do this going forward. So where that's I think one of the reasons why we're seeing a lot of the a lot of the partnerships, a lot of strategic alliances that are, that are cropping up in the industry. Some of the M and a activity and some of the investments that are being made in startups cause these are, it's a different skill set I think to be able to, to figure out what to do with this data.

Scot:    Yeah. Just kind of how many data scientists you have on staff. Right, right. Not many of the traditional car oriented companies have, have a lot of focus on that. Cool. So if, you know, so we've got these kind of big changes all colliding. We've got a lot of constituents out there. We've got the manufacturers, we've got the whole finance infrastructure, we've got the dealer kind of network, we've got rental car companies and we have all these new kind of digital disruptors. You think there's a winner in this or you have any predictions on, you know, w what happens to these various large constituents in this whole kind of changing world?

Ryan:    Well, I think, you know, that the, the answer to that question in my mind, it starts with the amount of financial pressure that's being applied to a lot of these traditional stakeholders that are, that are trying to find, you know, their way or their place in the next evolution of, of mobility. So, you know, when we talk about these, these case technologies is forward-looking vehicle technologies. The space that we're in right now. It's not as though, you know, OEM manufacturers can pick and choose what they want to be involved in. They kind of have to to figure out how they can be involved in all of it all at once. It's a very difficult position to be in and it requires a, a massive, a hideous amount of investment to that or be at this being piled into to all these things. So when you think about that pressure, you couple that with the, with the realization that there may not actually be an ROI for them at the end of the day.

Ryan:    So for example you know, the, the connected space you know, the, in our survey we asked consumers, you know, what, what they're willing to pay extra to, to be able to gain access to a technology that would improve road safety, right? So cars can talk to each other, they can talk to infrastructure, so on and you know, it's it's upwards of 30, 40% of consumers in the u s at least that tell us that they're not prepared to pay anything extra to gain access to that. So the question of ROI on the tens of billions of dollars is being piled in to the sector at the moment is a, is a huge question. So to answer your question though specifically, I think that preamble is important because what it sets up is a situation where we might actually see a lot more convergence happening in the market.

Ryan:    So you know, strategic alliances that are within sector, the automotive sector start to bleed out into a strategic alliances that crossover different sectors. So you know, Telekom, financial services, those sorts of things. And whenever you see a, a large number of, of strategic alliances and tie ups happening to me, in my mind at least, it's a, it's a precursor to some m and a activity. So we might actually be looking at some point in the future for the rise of the consumer company, if you will. Right. So it's not necessarily an automotive company anymore. And a lot of the automotive companies are re are trying to rebrand themselves as, you know, more mobility providers. I don't think we're quite there yet because there's a lot of pieces that still need to get plugged into to that equation. And I think there's a role to play for you know, financial providers who are a lot further down the road on, you know, mobile payment and things like that.

Ryan:    To, you know to, to really round out that equation for the consumer. And like I said, off the top, you know, as consumers start to, to take their experiences from one sector and, and apply that to their expectations in another sector. You know, we, that also might be feeding into this convergence of, of companies and and sectors going forward. Yeah. So, so you think there's going to be like a big, Monolithic Amazon like company that provides this whole slew of things? Is that Kinda, am I reading what you're talking about having a big consumer company? Is that kind of the not Amazon, obviously. Yeah. Not to, not to put too fine a point on it. I mean, there's, there, there is examples out there of companies that are, you know, rolling up their own sector and then figuring out how to off and start to own other sectors. And so, you know, big companies get bigger and I, and I think that's, that's something that we've got to keep in mind.

Scot:    Very cool. So I know we really appreciate you taking time out of a busy conference schedule. And any last points. The one I always like to ask folks is you know, where, where can they follow you online? Are you more on Linkedin, Twitter, or are over on the Deloitte website? Ryan:    I think the best thing to do is to, to check out our Deloitte insights website portal. So that's, that's really where we put all of our, all of the best thought leadership and insights that, that we're delivering to the market. And and I think it's it's been a great been a great interview. Thank you for having me on. Look forward to keeping this conversation going.

EP015 - Director of Automotive Analysis at IHS Markit, Mike Wall

http://www.vehicle2.getspiffy.com

Episode 15 is an interview with Mike Wall, Director of Automotive Analysis at IHS Markit; recorded live at the Automotive Intelligence Summit in Raleigh, NC on Wednesday, July 24th, 2019. Mike and Scot discuss a variety of topics, including:

• His 16+ years of experience in automotive industry forecasting and trend analysis with IHS Markit.
• The role of IHS Markit as a leader in automotive research and insights.
• A realistic breakdown of EV adoption, from the US to China.
• Cities where AVs will likely compete with mass transit in the 2020s
• The true impact of changing ownership models on new car sales
• The rise of AV and EV partnerships between automakers in the industry

If you enjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.

This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.

 

Transcript:

Scot:                     

Welcome to the vehicle 2.0 podcast. We are live podcasting here from the 2019 automotive intelligence summit from Sunny Raleigh, North Carolina is Sunday today. Yesterday was rainy, so it's good to deliver that to the attendees is Tuesday the 24th and we're excited to have on the show. Mike Wall. Mike is Executive Director of automotive analysis at IHS market. Welcome to show.

Mike:                   

Thank you Scott. Appreciate it.

Scot:                     

Cool. Well uh I have I come from the ecommerce world and I wasn't really familiar with you guys, but now I've been in the auto world. You can't kind of swing a cat without hitting your research, so it was really excited to have you on the show. But for folks that haven't had a chance to check that out, maybe give us a little bit of background about yourself and then IHS and, yeah, absolutely. We'll jump in.

Mike:                   

Yeah. So I've been covering the auto industry for IHS over 20 years now and spent some time in the supply chain. So working with an auto supplier, large tier one supplier, but over the last really 18 years or so, really working in them more consulted consultative phase, you know, working with in forecasting realm, forecasting, late vehicle sales, light vehicle production working with suppliers, automakers, financial firms, pretty much anybody with an interest in stake in the industry. And I just market, we are a broad and diverse business intelligence from coming, covering a wide variety of, of really business verticals, energy chemical financial markets. And in one of our larger verticals is automotive as well. So we've been steeped in research and analysis and covering this industry.

Scot:   

Very cool. And then you have a certain cadence that you publish for things? How does that work?

Mike:                   

We do! It does vary depending on the, the discipline and the are the, the forecast itself. But our production forecast is an example, is updated every month as well as our powertrain forecast. We do have very wide and deep powertrain forecasts and we forecast vehicle sales down to the model level. All this is very granular and it's also global so you can see it both globally and regionally all the way down to some very minute levels of detail including model level detail call. Is your role kind of North America or do you remind goal is, I work very much with, with all of our various diverse groups around the world, but my primary background has been in North America, certainly is where I cut my teeth in the forecasting space as it were. But we have folks on the ground all around the world that do the forecast themselves and then we globally coordinate it.

Mike:                   

So just a great group of colleagues that are really trying to cover this ever-changing industry. And where are you based out of? I'm based out of Michigan. I'm, I'm actually on the west side of Michigan. Grand rapids. Our automotive headquarters is our, one of our major offices out of Southfield to suburb of Detroit. We have several hundred folks working out of that location. IHS market as a broad group is actually over 14,000 employees. But our automotive practices is quite large in and of itself.

Scot:                     

Cool. so what are you speaking about here at the show?

Mike:                   

So I'm basically going to kind of give everybody hopefully like a 10,000 foot view of the industry as a whole, particularly focusing on the u s market. What's the sales outlook touching on some of the mega trends that, that we've been hearing about a lot. So electrification, mobility as a service, autonomous driving where we see the market playing out for that. We'll also sprinkle in some global trends as well in some, some global dynamics because it's hard to talk just about us without having a broader context of how the market's behaving or how the industry is behaving in other markets as well. So this is a, a, it is a very interesting industry in that there are a lot of different drivers impacting it and some of them are very tactically focused. Like, you know, we've got to sell pickup trucks if we want to pay for everything we want to do in, in the next 10, 15, 20 years. So there's very tactical side of it. And then there's a very strategic megatrend side to it too. Yeah. Intersect.

Scot:                     

So in the vehicle 2.0 framework, we talk about four topics. We talk about changing ownership connected car and then electrification and autonomy. I'll give you kind of a toss up. Which of those do you, would you like to jump into first?

Mike:                   

I think electrification would be an interesting one to jump right into. Yeah. Because, that is where we're seeing the amount of, there's, there's activity in all of those categories. So I don't want to, I'm not trying to diminish any of them, but boy, in terms of electrification, if you were to ask me three or four years ago, I would say, yeah, there's a lot of talk around electrification, but you know, we still haven't necessarily seen as much of the rubber hitting the road as it were. The capital being spent. Well that's changed mightily over the last few years. And we are seeing the capital being deployed and in fact we're on the cusp of seeing a multitude of new electrified vehicles being launched.

Mike:                   

Now that begs the question, will there be consumers are you know, ready to buy right now? Last year, I think the market was about 1.3% was true fully electric vehicles. Now the devil's in the details there as to when that inflection really starts, but for sure there won't be a lack of offerings. And that's the interesting thing. You look at a Tesla who has really just done a fantastic job kind of assuming leadership in that, in that space. Now we'll start to see some and other initial a competitors starting to enter in.

Scot:                     

Yeah. And then I, I know it's a small percent, but if you start, you know, I've seen some reports where if you look at a certain slice starting to be material like you know, there's like this 50 to $60,000 where has that disrupted some of the German makers? And there's this kind of reaction.

Mike:                   

No, absolutely. So when you look at, when you look at that space, and again, tussle is a great example with that. They've come in and entered that in really started to disrupt the luxury category as an example. And it's not, you know, shouldn't be as a surprise that we see new players coming out, whether it be Jaguar, I pace Adi, each run new sort of existing luxury players saying we're getting into that, we're jumping into that space. We, you know, we need to have compelling offerings and they're coming to market some very, very solid offerings in their own right. But it is very material in those, I don't want to, I don't want to diminish that either by saying those was 1.2 1.3% when you start sliced slicing and dicing it down the vehicle segments. Yeah. Boy, it's, it's important in the automakers see the need for it as well, frankly, because a lot of times we can sometimes think of the u s almost in a vacuum and maybe get constrained by, Oh, you know, it's not a huge percentage rate just yet. Um too. There's growth certainly. But then when you look at Europe and you look at China, we're really other Asia, a lot of growth coming down the pike. So it behooves the automakers to have that sort of broader strategy to be thinking about it.

Scot:                     

Okay. And then within EV, do you guys project when will it like a 10% or number or anything like that?

Mike:                   

That's a good question. It depends on the market. That would be my first, my first caveat. But when we look at the u s market, the North American market as an example, we see that as probably closer to 2028, 2030 timeframe. Whereas if you look at China in and Europe, it's going to be, it'll be sooner than that. It'll be an advance of that. And part of that is we've got a government and regulatory decrees and, and rules and regs coming down the pike in Europe and in China as an example that are really helping to foster that acceleration as it worked. It's not that we're not focused on it here. We sure are. When you look at the California resources board and Carb, but at the same time we're a little bit at loggerheads between that and cafe and, and there's still that is yet to be fully vetted yet or fully decided and once we get some more resolution to that, we could see some additional acceleration on that front as well.

Scot:                     

Cool. Awesome. What do you want to talk about next?

Mike:                   

Yeah, you know, autonomous is another hot topic. Obviously when we see all of the, the, the executions out there in terms of different deployments in, in, out west and well almost anywhere really. You've got a lot of different deployments. So it's really stoking a lot of interests and frankly, the technology development going on within that space has been nothing short of phenomenal.

Mike:                   

I sometimes I do worry that maybe we missed the forest through the trees in that whenever we talk about autonomous, it's oftentimes as anchored by l four and l five and for any listeners in, we'll have your l four l five means that the vehicle can essentially drive itself. L four, it can drive itself, but it's still a steering wheel and pedals, l five no steering wheel, no pedals. And to be sure if you look at our forecast, we see that true call it mass deployment further down the line, 2030, 20, 35 really when we start to see mass volumes on that end, because of a lot of hurdles we still need to really surmount. Probably the least of which is technology. The more focused right now is regulatory, legislative in liability and insurance. There are a lot of things that we're going over and we will overcome those.

Mike:                   

But in the meantime, I don't mean to diminish that either, to say that it's not happening because it is, we're seeing it than being deployed in certainly fleets scenarios. We're seeing them deployed in, you know, obviously geo-fenced areas, controlled environments even to this day. And there is a lot of opportunity out there within that space. But the other side of that coin, which I do think sometimes gets forgotten, is what would be considered sort of the classic l two l three, you know, autopilots the, the driver assist the advanced driver assist systems. And we're seeing just a lot of development in capital, in investment in that space and technology deployment in that space. So I kind of view both, both, both sides of that coin and you'd look at automakers, automakers themselves as well are, are thinking very dynamically about that. Yes, we have to invest in think about all four oh five, but at the same time they're also looking very strategically at that l two and l three and having solutions out there for consumers to help maybe with more of that consumer pull rather than a push. Um I, and I do think we're going to see maybe a little bit of bifurcation where you see 'em, you know, a fleet environment around mobility as a service that is supported and enabled by autonomous as that technology develops further.

Scot:                     

And then so just make sure I understand that. You mean? So like long haul transportation maybe or?

Mike:                   

That's a great example too. I D I even, yeah, I wasn't even referring to that, but you're absolutely right. But yes, elements of that long haul transportation can even bridge between sort of that l two l three into l four l five and in on that medium and heavy space. So when we were thinking about that, so class eight vehicles, the big rigs, semi trucks and trailers, As they're moving freight, there are opportunities around there as well at talk to folks out in the sort of the central us when they're thinking about some of the the, the legislative bodies in some of these states are actually contemplating creating highways that are autonomous zones, autonomous lanes in being able to, so maybe it's not autonomous on the city streets, but once you hit the highway, you can enter into more of an autonomous mode. Maybe you need a safety driver for certainly a period of time, but there are those activities going on on right now as well within this, within this space that even kind of transcend sort of the consumer quote unquote consumer market or the light vehicle market.

Scot:                     

Do you, so in electrical it was interesting because you have China, we'll probably get there before the u s do you see other countries ahead of us in AV, maybe it's the, if the technology's there and I'm a Waymo maybe I just kind of bail on u s and go to a children's thing or another country.

Mike:                   

AV can enable it can enable mobility differently in different markets. I would say that that's how we're kind of envisioning that as well and sort of that disruption. So it's a fair point. I think the, the, the interest in the of intensity and investment is certainly significant here in the u s so I'm not downplaying that. But at the same time when you look at a China in, in the congested areas and it's, it's definitely an emerging market for sure. And there is a high where it's going through a bit of a rough patch. We saw a sales contraction last year. We've gotten a little more forecasted this year, but at the same time there is, we do expect there to be growth in that market, but I do think that that growth in that market will, it will resemble maybe less of a developed market as we traditionally think about it less than the sort of the u s profile and more of a mixed profile that's going to be enabled and aided by autonomous and sort of that mobility as a service. So there's no doubt we are seeing investment going on in China too in the autonomous space as well. But I, I don't see it necessarily as a zero sum game yet where we lose in China winds necessarily on this.

Mike:                   

It's, it's kind of going where the money is in terms of where there's the potential to move people. You look at the u s in maybe the Midwest where you've got maybe a little bit more of a suburban sprawl if you will. In rural, maybe it's a little bit more challenging, but I'll tell you, we've got a lot of very large cities and don't even have, they don't even have to be the large metropolises talking today in an area that can be very conducive to moving people like that. And so there can, there definitely can be some very profitable business cases around that.

Scot:                     

Well and then I was talking about changing ownership and then one of the, one of the, as I've dug into those models that the key driver is AV. So, you know, once you take that driver out, you can get from kind of $3 a mile down to dollar mile. We had a robust discussion on that. Where do you fall on the changing ownership models? Do you see us going to mobility as a service kind of a model?

Mike:                   

You know, I think it's, it, it is interesting because I, and I still wrestle with some of, and this even came up I think in, in, in, in your conversation yesterday as well as I've been thinking about it in terms of carrying that capital asset. You know, if we're, if we're shifting that burden, if you will, to another entity, how do we get 'em, how do we get approved, you know, the requisite cost to capital paid for return on investment. And at the end of the day we as, until we get to the point where we're kind of all writing in these moving pods that are sort of nondescript. And I'm not saying we'll necessarily ever truly get there because I'm not sure I maybe in certain, again, megaplexes larger cities, metropolises where where it's all about moving people. And I would dare I say more of a disrupter to mass transit than traditional car ownership. When you, especially when you think about the u s it's still pretty ingrained outside of those larger cities, that personal car ownership experience. But you start going into, again going back to China or in India and you think about truly the business of moving people ability as a service I think is going to play a very sizable role in that, in that discussion, in executing that strategy.

Scot:                     

So, so you guys have an Evie forecast Nav forecast. Do you kind of do a, you know, an ownership, do you see new car sales kind of tapering off in 2030, 2035 as those drivers.

Mike:                   

You had a great slide yesterday that showed countable precipitous fall off. And then there was another one that was a little bit more of a, a feathered approach. And I'll describe that and I would say we're more than that feathered approach. And what do I mean by that? I mean we're going to see very much right now, especially if we, if we look at the u s market and break it down, it's very much a, a retail based with a layer of fleet in that fleet might be daily rental, it might be commercial fleets, things like that. But clearly the preponderance is, is retail as we go forward and we start bringing in mobility as a service to a greater extent as we bring in autonomous mobility as a service. What we're going to see is we're going to see that fleet model growing and we're gonna see that retail model contracting somewhat. But net net were there is a, I would say there's an a a net maybe low single digit headwind to vehicle sales.

Mike:                   

All things held equal due to autonomous and mobility as service. But at the same time we don't see a cataclysmic fall off you because of other things at play. And you could say the classic cases, well we're not using vehicles as efficiently right now because they're sitting in our garage, you know, 2021 out of 24 hours a day or 23 out of 24 hours a day. So if we're using them at even 18 hours a day more efficiently, haha you know, we, we won't need as many vehicles and I would submit a couple things. I do believe we may not need as many vehicles in operation. So if you think about that 278 million vehicles on the u s roads right now, we may not need that. We definitely see there being maybe a bit more disruption in terms of vehicles on the road because we will be using them more efficiently, but they're, by using them at such a rapid clip, suddenly when we're talking about driving a vehicle 12,000 miles a year, that could go up to 90,000 miles a year, a hundred thousand miles a year.

Mike:                   

So we start getting into duty cycles and replacement now that the sort of the converse to that is yes, but if they're electrified, they should be able to go longer to and absolutely. That's, that's definitely, that's definitely true too. We'll see that average vehicle age stretch, we'll be able to see that, that again, duty cycle stretch as well. But we do see some pros and cons of that where we don't necessarily see it as a death of the car, if you will. From that perspective or, or to the extent we start to see more disruption, it's gonna be further on down the line as you do start to see mobility as a service. Maybe take up even or, or go on the uptake even more.

Scot:                     

Yeah. And then there's always unintended consequences. Like I showed a chart where ride sharing Uber and Lyft have caused people to take more trips. So it's actually cause congestions in cities.

Mike:                   

That is a great point though. And it was very interesting to see that because I remember, I think it was last year, maybe late last year, maybe summer of last year, that came to a head in New York. I was in New York presenting at a banking conference and it was around that time, I think mayor de Blasio had been starting to pass down some decrees about, look, we've got to reign in all of this, you know, all the Uber and Lyft and mobility as a service and taxi because it has, it's blown up congestion. But you scratched on the surface of another. And even in your talk yesterday too, when we talk about total miles traveled, that, that concept of vehicle miles travel, you know, it's over well over a trillion or what have you. In the US as an example, what we are, what we, I would expect us to be able to do is really be pushing that curve out further.

Mike:                   

Suddenly we're going to be introducing mobility to more of the masses. Think about you know, folks that are, you know, have some sort of impairment, maybe blow a blind person who obviously can't drive right now, but suddenly he or she can, you know, push a button and someone who card come pick them up. Whereas before they may not get out as much or maybe they're using mass, like it's gonna Force to, a lot of times this discussion around mobility as a service and autonomous gets, gets wrapped around what's the auto industry gonna do with rightfully so. It's one of the ones that could be disrupted and you know, in the process of, you know, adjusting to it. Mass transit is another one in, I don't know how we necessarily navigate that. I don't know that that story has been fully written yet because you bring up New York is that great example. We've got subways, we've got buses, we've got cabs, and already some elements of those have been disrupted somewhat. You'd look at car rental and hold that whole concept there. Those folks in the car rental business are trying to adjust and adapt accordingly. Rightfully so. And there they're doing some really interesting work in their own end. So nobody's sitting still in this. But I don't think the story's fully, fully written yet.

Scot:                     

Yeah. To your capital and who's gonna, who's gonna pay for all these vehicles? That's the one segment that already is comfortable buying a lot of vehicles taking on the cap x load.

Mike:                   

That's right. That's right though.

Scot:                     

OEM's aren't and you know the, the dealers aren't and you know Lyft and Uber Aren't, but, the rental car companies, they have no problem saying Y'all put a thousand, I'll drop a thousand cars and LGA.

Mike:                   

And that's exactly it. And in the built that expertise up over decades, you think about that in terms of being able to adjust for that risk and, and shift on the fly as it were to, to, to, you know, make sure that that load, that vehicle load is balanced out where whatever region they may be looking at. So I do think they're gonna have a role in this. I think dealers, we mentioned, I think dealers are going to have a role if you think about fleet management, fleet maintenance. We were talking in an earlier session about subscription services. A really interesting concept, particularly in the used vehicle space because if you can create a sort of a cost effective solution for a buyer, maybe it's a, maybe it's a subprime buyer or you know, somebody in that, in that sort of category where they would be paying an exorbitant interest rate. But now through through interest rate arbitrage some sort of capital provider could base and maybe it's the, maybe it's a dealer, maybe it's a buy here, pay here, date dealer that can offer a true subscription service where that buyer now is going to be almost more quasi renter or they're going to be a customer that will drive that vehicle, pay a monthly fee and that will wrap up insurance. It'll wrap up the vehicle usage itself may be maintenance and repair and all that at a cost effective basis for the, for the consumer.

Scot:                     

Okay. And then we're up against time. But the last, last kind of kind of wave of innovation is the connected car. And there's kind of two elements out of, there's kind of like the in-dash and improving the customer experience, but then there's also an interesting, you know, a lot of people project that that data will then be used improved infrastructure and talk to cities and that kind of thing.

Mike:                   

Yes. And that's what we've seen, we, we see a lot of development in that space. We've already seen, you know, some certainly, but we expect to see even more. And frankly we have to things like vehicle to vehicle communication, vehicle to infrastructure, communication. In order to make this autonomous concept really work, we've got to get these vehicles talking to each other, we've gotta get these vehicles talking to the infrastructure. The true concept around connected car on that sense needs to happen in order to enable all of this. And so automakers themselves are, are obviously working feverishly on that, on those categories as well. You know, it used to be automaker just had to design and build a vehicle, you know, and didn't break hopefully and start to form a brand around it. Now they are moving into propulsion, alternative propulsion systems, autonomous technology, connected car technology.

Mike:                   

And then eventually we can start talking about, and you talk about data, data usage, data ownership. If we're in a true l five self driving vehicle and you're not having to drive, can Google start running ads? You know, we'll, we'll, we'll other buyers or other ad creators if you will, by space on your dashboard, by space on your windshield. Just to, you know, sell you something or you know, if you think of the Amazon model, you know, I know you bought this last week, you might be interested in this. And, and suddenly you've got a whole other business model where that data that's being generated maybe worth a lot more than people are thinking. Absolutely.

Scot:                     

Cool. So where do you think happens to these different constituents are that will lay all find a home? Is someone going to be kind of the future Brontosaurus in this world?

Mike:                   

That's the, that's the billion dollar probably trillion dollar question right now because there is so much investment going on in this space. And like I alluded to earlier, you know, at the end of the day, if I'm an automaker, I still gotta sell pickup trucks and utility vehicles because that's paying the bills right now. And yet you've got a lot of venture capital on of Capitol in general, just flooding into this market. I guess that would be though, and it's not uncommon, don't get me wrong, but it's one of those things that I, I do look at it and I, I worry a little bit is we haven't had that, it's been 10 years really since the big recession. We're bound to cyclical industry. So capital patients has been actually pretty patient I think in the overall scheme of things. But how does that patients test it?

Mike:                   

If do have a downturn, does this proliferation of players, do we start to see some consolidation? I think we will. I think from an automaker perspective we're seeing a lot of collaboration and I think it makes a lot of sense. You look at Ford with Volkswagen, you look at GM with Honda as an example with autonomous, I think we're going to see more and more of that because at the end of the day, these automakers have limited buckets of money and they have to deploy that capital strategically. And I think it's a, it's, it's a much more sound solution is to partner where you can to help to spread some of those costs out. And I think the more we do that and we're doing, we're, we're executing on that strategy, I think the better. And I think inevitably you will start to see some consolidation in some of these different disciplines, whether it be, again, the subscription services and those players are connected car space and you know, even the downstream suppliers that are feeding into all of this.

Mike:                   

That's the thing we've seen on just speaking from the supplier perspective, we saw that we're seeing suppliers actually carving out some business where it's not strategic anymore and bringing on new business to Bolt-on to broaden the new strategy that they have. Very healthy. So all of that I think is actually very healthy, but I think we're going to see more of that too.

Scot:                     

Very cool. So last question if a, so really enjoyed the conversation. If folks want to learn more and follow your research.

Mike:                   

Yeah.

Scot:                     

Do you publish that out on Linkedin or Twitter or where do they

Mike:                   

So yeah, I'm on Linkedin under Mike Wall, IHS market. Www.Ihsmarket.Com and that's m a R K I t.com. We have a load of research on there, particularly looking at our, in our automotive practice, and certainly folks can reach out to me directly. Happy to chat on the industry anytime.

Scot:                     

Awesome. Thanks Mike. We appreciate you taking time out of busy day to speak with us.

Mike:                   

You Bet. Thank you!

EP014 - Co-founder and CTO of ACV Auctions, Dan Magnuszewski

http://www.vehicle2.getspiffy.com

Episode 14 is an interview with Dan Magnuszewski, Co-founder and CTO of ACV Auctions; recorded live at the Automotive Intelligence Summit in Raleigh, NC on Wednesday, July 24th, 2019. Dan and Scot discuss a variety of topics, including:

• The road from Dan’s upbringing to establishing a startup community in Buffalo, NY
• How ACV Auctions serves dealerships with real-time, 20-minute auctions
• The technology behind the scenes at ACV Auctions, from condition reports to payments & titles
• His experience with blockchain and co-founding the Blockchain Buffalo group
• His role as an investor and advisor for Drone Energy, an industrial IoT and smart grid solution

Be sure to follow Dan on Twitter and LinkedIn. If you enjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.

This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.

Transcript:

Scot:   

[00:51]    Welcome to the Vehicle 2.0 podcast. We are live at the 2019 automotive intelligence summit here in big beautiful Raleigh, North Carolina. It's Tuesday, July 24th, and we are really excited to have a special guest on the show. We have Dan Magnuszewski,and he is the co founder and CTO of ACV auctions. Welcome to the show, Dan. Thanks for adding me. So appreciate you. We're doing this at lunchtime, so appreciate you kind of skipping lunch a little bit so I know sacrificing the lunch and, you know, pretending the fast. Yeah. Awesome. Uso let's start with your background. We'd love to know, you know, as a fellow technology guy, you know, did you do comp sire engineering and then take us to how you ended up, at ACV auctions?

Dan:    

[01:42]    Sure. So born in in really raised in Buffalo, New York as I was going through school always had an interest in computers. I initially wanted to be an astronaut, but it was, wasn't good at math, so I said, okay, well I can work on, you know, you know, computers and stuff. That's cool. And then, you know, that, that, that's my contribution. So I got really interested in computers. In high school we had a Cisco Network Academy course and this is kind of like 97 through 2001 took some web design classes. And then like I said, this is go network academy. And so I got into networking graduated high school and was going to University of Buffalo for computer science. The summer leading up to it, I was fortunate to get an internship with a a regional bank and I was working in their network operations center and writing software that was helping monitor the network and you know, the systems and things like that.

Dan:    

[02:46]    So worked, worked there throughout college. And a couple of years after I left there, went to a kind of a growing startup in buffalo called Synacor. I was there from, you know, there was about a hundred people and when I left a little under, four years later, there were about 350 people prep and we're preparing for IPO and all this other good stuff. They tried the first time, it was 2008 when they're attempting that. So yeah, not, not quite the timing. So I left there. They, they IPO a couple years after I left, but so I left there and to go do a startup with a buddy of mine. We did that six months in, went to south by southwest, didn't necessarily launch. So kind of went around and started becoming a technical cofounder for hire worked with people out of the west coast, New York City, Chicago who had an idea and had some money and were looking for someone to kind of make this into a real thing.

Dan:    

[03:50]    So I would, I'd really take it, take the product idea, like work through it, figure out what the MVP is, really try to focus it and then would go and build it. So I was doing that for a while and kind of along the same time, I was doing a lot of things in the in the local community around how are we building, you know, startups and coworking and a whole bunch of other stuff. So, so I was doing that and we were opening, well, a couple of people were opening a an incubator in buffalo in five point $2 million seed fund and you know, so that was really the first of what a first of the incubators and things like that in Buffalo. So a kind of career shifted a little bit and went into venture capital and how do you build businesses?

Dan:    

[04:38]    And studied under a couple of guys who had a Jordan lovey around triber who had built a couple very successful companies and with Softbank capital in New York. So I was working with them and kind of understanding how do you build a business, how to vcs, look at investing in companies how do you pitch your company? How do you do all these different things that just building how do you build a great business, but then also how do you then go and pitch it and raise capital and things like that. Did that. And so after a while it felt like it was kind of sitting on the sidelines a little bit, you know, trying to help mentor companies and things like that. But I wasn't really fully getting my hands dirty at the end of the day. So I had an itch to kind of get back into it.

Dan:    

[05:24]     I was working on some things on the side. And then somebody applied to the incubator they, they had just moved to buffalo from Albany and basically say, I have this idea and I, you know, I was a used car dealer. I went and I was selling 50 cars a month and it was a nice little business, but I'm running around all these auctions all the time. And so he moved to Buffalo, worked at a, at a decent sized new car dealership and saw a lot of inefficiencies in their wholesale process. And he's like, you know, I, as a, as a used car dealer, I would love to get access to this inventory where they're taking a couple of photos and just putting it in their dms. I would love to have, I would love to have access to this. So it's like, I have this idea and you can get a push notification and you know, you can buy this inventory ahead of time.

Dan:    

[06:14]    And it was really, you know, so it was really the initial, a seed of ACV auctions. How do you take mobile phones and mobile adoption, smartphone adoption in the industry was, you know, starting to really pick up, you know, my, my dad's a used car dealer and as I was building it he still had his flip phone, so it was like just around as we launched that he ended up getting a smartphone. I think I kind of forced them a little bit into it. So so, so the timing seemed right. So I talked to him. I said that, yeah, this, this makes sense. I could build it. Let's start working on it. So this was about five years ago, so it was a summer of 2014. We just started kind of nights and weekends, started talking to dealers started talking to some investors as well.

Dan:    

[07:07]    And but really it seemed like, you know, we had something there. So by the end of 2014 we left our jobs and sold our houses, downsized, and we were all in a building the product. And so kind of that first half of 2015 we were building the product, going around trying to sell it just in the buffalo market. That was going to be our initial launch market. And we had 250 dealers signed up and January 1st of 2015 we were sitting around one day we were like, okay, let's just, let's just launch it. You know, the app was an app was out there, people are asking for it and we're like, you know, Shit, let's go do it. So, so we did and a sold our first car and you know, we were kind of off to the races from there.

Scot:    

[07:56]    Yep. So, so for listeners that don't know, I've learned a lot about this coming from the ecommerce world, it seems crazy, but most auto auctions you, you bring the vehicles with you, like physically you put them on a car carrier. So I'm a dealer and I have 50 cars that have been sitting on the lot for a long time and I want to wholesale them. So I put them on a travel trailer and I go to usually a location that's out in the middle of nowhere because these places take a lot of land. So I'm near a city, but usually like 50 miles outside of the city. And then I, I, you know, I unload my cars and they go into these lanes. And then there's you know, there's this kind of phase set up time. So there's like a day or two where you set up and then the auction starts and then you have literally other dealers, kind of a big group of dealers walking down a lane and they're kind of like, all right, now I'm at car number 84, and it's a red, you know, Toyota Camry.

Scot:    

[08:44]    And then you have a little auction right there. And then someone went quote unquote wins it and then you're onto the next vehicle. And then, you know, the winners take all their cars back with them. You know, they'd load them up onto a travel trailer and they'd take them back. Yeah, yeah. And that's, you know, really there, you know, you're, you're kind of moving the car twice. You've got the super inefficient, you know, walking down a lane, it could be raining and you know you don't have, you know, an old nurse, there's almost no technology in these things, right? There's no alert that kind of says I've been looking for a 19, you know, a low mileage BMW or anything like that.

Dan:   

[09:18]    Yeah. And you know, that's really the core of the inefficiencies. So my co founder, Joe he was on the road three, four days a week, a hundreds of miles in different directions nobody at, at his, his lot doing what he needs to do to make money, which is selling vehicles.

Dan:    

[09:36]    And even when you get to the auctions, you know, multiple lanes, there could be five cars you want to buy and they're all running in five different lanes at the same time. Murphy's law kicks in, well, what, what are you going to do? So, so there's that efficiency. You know, a lot of times, you know, kind of the industry standards, 50% of the time the vehicles aren't selling at those physical auctions. So, you know, you go and you wait a week, it runs, it doesn't sell. Now as the seller, you're saying, okay, do I send this to a different auction and kind of Plinko it all the way through the system or do I let it sit there for another week and see what happens again? So, so there was just a ton of inefficiencies. And with mobile, mobile smartphones at the stage, they were at the adoption.

Dan:    

[10:21]    It's like, why, why are we not? Why, you know, why is no one done this? Why is nobody doing this? And why are they traveling all over the place, moving vehicles multiple times, just super inefficient and, and as time goes on and that vehicle's sitting on a lawn or you're moving at place to place the vehicles depreciating, things could happen to it. So our, our concept was this never has to leave the lot. It can stay on your lot. No one's moving it. No one's, you know, you don't have to worry about someone stealing a mirror off of it or denting it. It's, it's, it's there and we can, we can have it sold in 20 minutes.

Scot:    

[10:57]    Cool. and then so, so it's always smart to go try to disrupt something where you can kind of do a 10 x better user experience, it seems like. Yeah. Uber was genius or going after taxis because the tax experience was so bad and it still hasn't caught up, you know, so it definitely much better. It was so easy to provide a 10 x better experience.

Dan:    

[11:12]    And, you know, what, what Uber did a taxis we felt we could do to the auction industry, which, you know, really the, you know, the Internet era and Silicon Valley in New York City, you know, the wholesale market specifically, it was just very much a pass by, and it was, it was a lot of the big incumbents and not a lot of you know, it really wasn't that sexy silicon valley, a problem that people were trying to solve. You know, it was, it was a perfect Buffalo Tech you know, startup idea for us to go after.

Scot:    

[11:49]    Yeah. Yeah. We get the same thing. They're like, you know, the traditional vcs were like, you have employees, oh my God. But we don't invest in those types of businesses. Like, okay so less flash forward. It's five years later. You guys have had crazy success. You raised 150 million. That's not always the bar of being successful. Correct. But you've had a lot of success on the revenue growth and I don't know what you've give us an idea for the scale of the business, like how many cars are auctioned or, or anything like that.

Dan:    

[12:15]    Yeah. So, and we had some stuff out in the previous months selling over 20,000 vehicles a month. We have, you know, we're in, you know, about 115 hundred and 20 territories. We're well over 700 people total. And that's across from, from sales, through engineering, technology, things like that.

Scot:    

[12:38]    And you've so, so walk us through the, the kind of the new digital user experience. So I'm a dealer and I have the same 50 vehicles now. Do I list them? I think you guys have an option where you can even have a team come in and do the whole thing, right. Kind of a full service operation.

Dan:    

[12:53]    Yeah. And really iterating initially what we did was allowed the dealers to do with themselves. And you know, there was a lot of issues with that and created, you know, there, there wasn't really all that trust and transparency, which is what we really pride ourselves on. So kind of, you know, normal startup thing. People were, certain dealers were, oh I was too busy to list the cars or the kid I had hired to do it, he quit or he left or whatever. So were like unite. All right, great. So we're in, we're going to remove all excuses. We're going to hire someone and all they're going to do is show up on certain days and do condition reports. And, and it was really to keep the supply of inventory going in and the benefit of it was people are like, Oh, I love that you guys are doing the condition reports. Yeah.

Scot:

[13:40]    So buyer's side, there's consistency too, right? Right. So, you know, your definition of good, better, best or fine, very fine or a bad scratch, a good scratch, any of that stuff is going to be much more consistent than, than the actual seller.

Dan:    

[13:52]    Yeah. We, we try to be super, you know, very objective condition reports. We're not trying to make it look better or worse, we're just trying to call it for what it is. So we've built out, you know, a huge network of, of, of these inspectors now. And really it's, it's, it's the main way that we're doing a inspections and people just really like that they can trust in us and we can be that, that trusted source. And for anyone who knows the automotive industry, dealers rarely ever trust each other. Right? So that was a really huge benefit to that having those inspectors and having people with their, you know that are trained by us, that are using our software that's custom built to build the best condition reports in the industry. That's, that's really what we've done and it's, it's worked out really well.

Dan:    

[14:43]    It's not the pure software play that a silicon valley type company would want, but at the end of the day we're going to end up with the largest inspection network in the country. So so there are some real benefits that when you're dealing with these tangible physical assets.

Scot:    

[15:00]    Yeah, yeah. I think it gives I don't think the venture industry is woken up to it, but as a, as a software option or cloud computing is like lowered all barriers of entry, right? Two people can create almost anything. So the fact that you have these inspectors makes it that much less appealing to, to Stanford grads. You know, right now in comp side wanting to replicate your model, that's going to be like, Ooh, that's Achy at all. I don't want him, I don't want 700 inspectors or whatever the number is.

Dan:    

[15:25]    Right, right. Yeah. And you know, there's definitely, there's definitely cost to it and there's definitely the training and the onboarding and hiring and, you know, so it does, it does add a little bit of a hurdle for just a pure software play. Uh and we've, we've kind of gone, you know, we've done that already and we understand, you know, we understand where the benefits and where the issues are going one way versus the other. So but we've been really happy with it. Our dealers love it. So yeah, it's worked out really well.

Scot:    

[15:53]    Cool. So I've got my 50 vehicles, I've got your guys coming every week to Kinda like help me wholesale. I fly, I got the chalk mark on him or something, or I give them the vins, they do the inspections. Then I think they would imagine, you know, list, you know, I'm a, I'm an ecommerce guy, so I'm easy commerce vernacular that may not be right. But in the Ebay, Amazon world, we would list the product out there. And then the buyers probably are, you know, there's probably some cadence or the buyers kind of come in. The buyers I imagine would have alerts and that kind of deal. So they buy the vehicles or, yeah, yeah.

Dan:    

[16:25]    And I can walk through there real quickly. So we, we have scheduled set up with our, with our dealers who are selling our condition. Inspectors go in, they get the keys, they get the price, they go out, they do full condition report takes, you know, 10, 15 minutes. And once they have that, there's different options where they can let it run live. They can save it to run later. And so, but if they say, hey, I'm going to run this auction, now that auction instantly gets, gets created based on buyers filters. The buyers will be notified saying, hey, here's a new auction. It's this vehicle. They go in 20 minute long auction and they can bid right through the app. In 20 minutes we have a high bidder.

Dan:    

[17:09]    And based on what the sellers reserve prices, that vehicle can be sold in 20 minutes. And and we can, so, you know, a whole bunch of them within that time period. So, so that's really the, the process and, you know, post-sale, we also handle everything from titles and payments and we have integrations in the floor plan financing. So we have those options. We have transport that we do as well. So we've really gone from just being a marketplace to adding all of these different components to be a true end to end solution for these, for these dealers.

Scot:    

[17:46]    That's the big trend in market places now is Opendoor has changed the real estate industry by, you know, going in and replaced Zillow would introduce, you know, the buyer and the seller. And then now open doors actually going in, you know, essentially even acquiring like part of the this stuff. Yeah, the managed is, yeah. Cool. I could talk for hours about this, but that's a really good overview. I want to make sure we have time. I noticed on your linkedin you do a lot of other cool tech techie stuff. So I saw you're involved with some blockchain and then there's something called drone energy, which kind of caught my, my attention would explain some of those, those things that you're doing on the side.

Dan:    

[18:18]    Yeah. So you know, in the local startup community I've been involved for for a real long time and I always like helping people who have ideas and they may not notice start, they may need, need introductions of I've been doing that, you know, probably almost the last 10 years, just really trying to help connect people. So, so I, I tend to have people come to me pretty often with ideas and I try to help them out where I can. So you know, a couple of years ago really started looking at there's a great book called the master switch and it's about information information technologies over time have been very centralized and then get de-centralized and then research, centralize and decentralize. And you know, you, you look at a lot of this stuff going on with Facebook and others in terms of privacy and data and, and things like that.

Dan:    

[19:11]    And we're in a very centralized, where a couple of really a couple of companies own all the data and all the power. And I think we're kind of now going, you know, the next step is to get into more decentralized. So as I learned about a theory and blockchain and a whole bunch of other stuff, it really clicked that hey, there's to be some new model where people can own their own data, they can monetize their own data, they have that control over it. How do we look at money on the Internet? And so there's a lot of really interesting things that getting into blockchain and cryptocurrencies really got excited about it. And so within Buffalo, we started this blockchain group where we were meeting every week and giving talks on, on different aspects of it. So I got really involved in that.

Dan:    

[20:01]     Drone energy is a mining company where they've shipping containers and they have this patented shipping container style where they can build, you know, there's, especially in northeast, there's a lot of these either cogeneration plans or you know, even just old factories that can't maintain their base load because manufacturing is demand has gone down in those areas. So there's a lot of excess power is one thing I learned a lot of power that exists just can't be used. And so this is a way where you can, by having a whole bunch of bitcoin miners and cryptocurrency miners running miners being very highly intensive computers that, that are computing at, at you know, for that very one specific task. So, but it requires a lot of power and so they can go and help maintain a base load so that a factory can run and doesn't have to batch up work or a cogeneration plant can turn on and maintain a base load.

Dan:    

[21:01]    And so, so that's really what drone is doing. And so I got involved with them and you know, made a little investment in them and I've kinda been mentoring them along with there's a couple other marketplaces as well since since I've been involved in marketplaces people who have kind of reached out, whether it's selling used manufacturing materials or whether it's produce that's you know, going to be thrown in the dumpster, that there's brokers that are just literally, they get this, you know, what's called number two and number three produce that they just have to throw out. So how do you build a marketplace around that for restaurants and others who don't need the most perfectly looking tomato if you're going to be making sauce? Right. so I've been helping these types of companies you know, through just kind of the idea and, and getting, helping to get the business going and help them think about a lot of the things that I've a lot of the mistakes I've made through ACV and the things that we did wrong that, you know, I can kind of impart some of that, that wisdom to show him some of the scar tissue and hopefully they, they make different mistakes and not the same mistakes.

Scot:   

[22:15]    Yeah. Or You, you tell them all the mistakes and they just go do them again or they just say, yeah, don't do that.

Dan:    

[22:21]    Yeah, I told you, I told you, I told you the stove is hot. Don't touch it.

Scot:    

[22:26]    Cool. one question I've been dying to ask is what does the ACV and ACV auctions stand for?

Dan:    

[22:31]    No, that stands for actual cash value. So it's an industry term. And when we initially started our, our main goal was live appraisals. And so it was going to be you know, someone comes in, they want to trade in their vehicle and there's not a lot of trust in that process of, okay, let me go talk to the manager behind the glass. Okay, here's what we can give it, give you for your car. And they're like, well, Kelly Blue Book says this. And they say, well, Kelly blue book doesn't write a check.

Dan:    

[23:01]    We do. So it was just this very non transparent process that a lot of people didn't like. So we, we looked at it and said, hey, we can solve this problem of vehicles going to auctions and dealers having to go to all these different options to get their inventory. But at the same time we could also help the, the franchise dealer by saying, Hey, you can provide this transparency at this stage. What you can do as they're going to test drive their next vehicle. You'd take some photos, you do a condition report, and you can send that to auction. So by the time they get back from their test drive, you can say, Hey, I know you wanted $10,000 for this vehicle, but we had 12 bitters and we got you 9,500. That's the market value and it's a much easier conversation to have.

Dan:    

[23:46]    So that's initially how we you know, kind of we're starting and that number that they have is the ACV that that's their actual cash value for when they're going to go wholesale it or sell it at auction. That's the number that they think they can cash out for. So we were kind of the guaranteed EQ actual cash value for, yeah.

Scot:    

[24:10]    Yeah. The so a lot of marketplaces, one of the ancillary business models is the data they throw off. Do you guys have you guys close the loop on that? Where if I'm about to list a vehicle, I'm a dealer and I'm going to list a vehicle and I've got a crazy reserve on it. You probably have enough data now where you can say, hey, that, yeah, we're happy to list this for a $20,000 reserve. But we, you know, vehicles like this on our platform have sold for 12, five or, yeah.

Dan:    

[24:33]    And we, and we've, we've built out pricing in understanding what a vehicle is going to be priced at or should it be priced at. And it's, it's a really delicate conversation to, you have to have a, because you're telling someone they're wrong and you don't really know how to price your vehicles and dealers feel that they're really good at pricing their vehicles. So you know, so a lot of times, so we try to take, you know, part of an approach where it's, you know, we're providing them you know, what we believe in is more of a recommendation, a and not necessarily a heavy handed approach. And so we use that with our people in the field to help show them, hey, if you, if you price it in this way and you price it appropriately, you'll actually do more than if you price it aggressively.

Dan:    

[25:20]    And everyone says, oh, this person's nuts. I'm not even gonna pay attention to this option. So, so there's a lot of those different dynamics that, that we work through. So it's currently, it's kind of a blend of the, you know, machine learning and intelligence from that perspective. And you partner that up with you know, a person that's having a conversation and explaining it and not just, you know, hey, this is what the machine says, so that this is what you have to do because that, that doesn't work in this, in this industry.

Scot:    

[25:48]    Very cool. I could go on for another hour or so. So it's been good. We'll have to have you back on. Well, we didn't even get to talk about where you stand on the future of vehicles or any of that and that good stuff. So we'll, we'll leave folks waiting for that.

Dan:   

[25:59]    Awesome.

Scot:    

[26:00]    Last question, if folks want to follow you online, do you, are you a linkedin person, Twitter, Facebook publisher, where, where should folks go?

Dan:   

[26:07]    Yeah, so I'm a, I'm on Linkedin, but I'm also more active on Twitter. I'm not really on Facebook. So magnus chef, m, a, G, N, a. C. H, e. F, a, is my Twitter handle and that's where I'm, I'm most active on, on social.

Scot:    

[26:22]    Cool. Thanks for coming on the show, Dan. We really appreciate it and really enjoyed the conversation.

Dan:    

[26:25]    Great. Thanks for having me.

EP013 - Auto Intel Summit Recap with Joe Overby

http://www.vehicle2.getspiffy.com

Episode 13 is an interview with Joe Overby, Senior Editor of Auto Remarketing & Auto Remarketing Canada; recorded live at the Automotive Intelligence Summit in Raleigh, NC on Wednesday, July 24th, 2019. 

Joe makes his return to the podcast to talk with Scot about all of the happenings at AIS; from their favorite sessions and what was covered to the diversity of this year’s show. 

If you enjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.

This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.

 

Transcript:

Scot:              

[00:56] Welcome to the vehicle 2.0 podcast. We are live recording here at the 2019 Automotive Intelligence Summit from sunny Raleigh, North Carolina. It's Wednesday, July 24th. It's been a long day. We're here at the end of the day, end of day two. So two thirds are a little bit more than that through the show. And excited to have Joe over beyond Joe is as a reminder to listeners as senior editor of auto remarketing. Also, you're the first guest we've had on the show twice. So, so you're famous.

Joe:               

[01:24] That's awesome. That's a come back, man. I feel special.

Scot:              

[01:29] So in addition to your role there, you guys put on this show. So you've been kind of, you know helping with a lot of the content and everything. So we thought we'd check in now that we're through the bulk of the show can get a read from you. What's been kind of the topical top of mind with it?

Joe:               

[01:45] Yeah, I, I think I think yesterday some of what stood out to me kind of in the, in the general sessions at least was the cybersecurity. It was, I, I don't know if scary is the right word, but the the ability of, of hackers to be able to generate, to get into you know, dealership systems and automaker systems and, you know, even even you, our personal data or personal credit card information, I think it was really eye opening, especially that, that last panel a with or that last a fireside chat with Ryan Bachman. GM financial. I thought I thought, you know, I, I got to sit in on your session yesterday, Scott. And I thought it was a couple of things really came up in that session that was interesting to me that just the I think it was one of the first charts you showed with how fast the rate of change and digital automotive has been compared to what I would the last 50 years prior. That the retail model is just you know, changed so quickly. And then you know, I think look

Scot:              

[02:52] At how fast Carvana came out of nowhere. Like I've never heard of them two years ago, maybe 18 months ago. And you know, you've got the

Joe:               

[02:59]  Vending machines everywhere and, and you know, everyone here is talking about their experience. I, I'm new to this digital retailing that's kind of, it has been a big topic that I've picked up on. Yeah, absolutely. And I thought, I thought today, you know, really was a big kind of digital, digital retail day. The particularly that dealer panel where we, we had four, four dealers and the, the president of the North Carolina auto dealers association talk about for a good bit of their time, you know, on the panel they talked about the digital retail experience and how, you know, I believe it. Okay. I think it might've been the, the gentleman from, from flo who talked about how dealers have the infrastructure and an inventory to do digital routes, the best of that to do their best position that guests to do digital retailing.

Joe:               

[03:52] And you know, they had some, some interesting thoughts on Carvana as well. And you know, as part of that panel and then also a couple other, you know, just discussions was the fact that I guess the key to digital retailing, you know, whether you're a dealer or whether you're, you know, Nordstrom's or whomever is offering kind of a blended experience between the online and in store based on what the customer wants. And I'm sure you've seen some of the same things with any commerce's. We, there was a long phase where we called it Omni channel and now they call it harmonized. So omnichannel was kind of trying to just like make your inventory counts work across online in the store, just kind of the basics x's and o's. And then harmonized is things like I add something to my cart on a tablet and then I go into the store and the sales associate can like know what's in my cart.

Joe:               

[04:47] So it's interesting to see the same conversations going on here. The dealer network makes it more complicated. It's almost as if every store was its own little business. Yeah. So imaginary Nordstrom's was independently owned and operated in a way, you know, a, or a franchise. I bet that's gonna make it really hard because you may have one dealer that's kind of, you know, within a, an OEMs world, far along the spectrum. But then another one's not. If the consumer starts at the OEM site, they're gonna have very different experiences. They go into different dealers. So it feels like a lot of it's going to have to come down from the OEMs. And I haven't heard a lot of talk about them. And it's interesting too, because a lot of these digital retail, you know, providers that work with dealers, you know, if a dealer wants to do digital retailing and you know, they work with one of these tech providers, you know, to do so, you know, you have these companies that are providing it on a dealer level, kind of a dealer group level, and then also the OEM level.

Joe:               

[05:46] So it's, it's Kinda, it can be, you can imagine where the messaging kind of gets mixed up in that process. Yeah. Yeah. The consumer wants to look across inventory, right? Yeah. You don't just, you don't, as long as the target, you're looking at it, you know, the target store is within 10 miles and you're looking for a very specific thing. You have some flexibility there. So it's gonna be interesting to see how that Nav, how that evolves. Yeah, absolutely. The another, another thing that jumped out to me today was it was also during that, that dealer panel where the head of the NC auto dealers association, Bob Glazer, he asked the panelists, the, the dealers when they thought, you know, he was using Raleigh as an example when Raleigh would have fully autonomous vehicles on the road. And, and you know, one of them said, Oh, you know, 2020, 23, another one set out, it'll be like 20, 40.

Joe:               

[06:41] And then the woman from crossroads automotive, who's there, she's there, court corporate counsel. She said, you know, this is the lawyer speaking to me, but never, you know, she said it's the insurance companies will be playing a bit of a, her term was, you know, having a punting match on who's going to take liability. So I think that that just illustrates some of the, you know, I don't know if I would say never, but it illustrates some of the complicated you know, issues out there with autonomy. But I think you could say the same thing about, to certain degree about subscription and other shared shared usage models. You know, who's gonna take insurance liability, who's going to pay for x, Y, and Z. I think those are, those are issues that are going to be raised for sure. Yeah, it's interesting. I can kind of argue either side.

Joe:               

[07:31] I see, I totally see your point. But on the other side, if you believe some of the stats, like even just kind of the level two in three stuff reduces accidents by like 80%. The insurance industry should be happy for autonomy and you know, I think they have a business reason to get around it and say we'll take on more liability because the liability we have today is going down by 80 or 90%. So that's how I talked myself into the other side of that. Again, and they, I think one of the one of the panelists or not panels, one of the sessions talking about the, you know, there's insurance companies now that are working with some of these subscription platform providers to figure out, you know, they, they to write specific policies that, you know kind of all the different usage cases of subscriptions in it and what kind of policy that driver would need and the you know, companies would need to do those types of things.

Joe:               

[08:24] So to your point, I think a lot of the companies are seeing it as a business opportunity. Yeah. Okay. Any other big trends? Well, I think that one of the funnel sessions was interesting to me. The the startup portion where they were talking about, you know, just opportunities for collaboration. And Quinn Garcia, who the managing director of, of autotech ventures mentioned that, you know, a lot of times we see startups as, or they're referred to as disrupting, but you know, in a, in in many ways they kind of help solve problems within a traditional industry like automotive because they, they have the ability and willingness to, to innovate and move quickly. The other side of that, he said they're challenged. Scaling can be a challenge, but what they're really good at is innovating and, and, you know, changing you know, being willingness to change and, you know, company we refer to lift, you know, and their their ability to work with some of these more traditional players in automotive. You know, for working with dealerships, for example, to provide loaner fleets or transporting service customers to and from dealerships. I thought that was an interesting point. And as a side note, I thought it was interesting that when he was talking about having two guys live at his house and while they started Lyft, I just immediately thought of the show Silicon Valley

Scot:              

[09:57] There Erlich Bachman's house. And started the company there. Yeah. He always says that co that car that's like from like six companies again, he always says it was Bob before its time. Wait, none of us, I don't think we've ever learned what that company did. That's funny. Yeah. And then they lived in his parent's house or something. Yeah. Very silicon valley thing to do. Yeah. I thought that was arresting. We, we see that in the retail world where a lot of retailers have these innovation centers. They kind of go through this cycle where they'll open up the Silicon Valley Innovation Center and they realize how expensive that is to hire engineering talent out there. And then also it creates a weird thing internally, right? So imagine you're not in the innovation center and you're just aligned level executive or developer and you just feel like you're outside of the innovation.

Scot:              

[10:40] So then that, that's one cycle they'll go through and then they'll, then they'll, they'll kind of make it more of their overall DNA. And then part of it is being able to partner with startups and, you know, definitely spiffy. We're feeling that from the automotive industry where a lot of these parts manufacturers, so for example, Mon humble is a, an investor in us and they are a filter company, you know, what you'd think is a very boring uninnovative innovative space. But they've realized that, you know, they need to understand what the consumer's behavior is changing. So, so we're seeing a lot of the auto companies you know, really I think very quickly invest in this space much more, you know, the retail industry took kind of 20 years, but it seems like the auto industry is moving very fast.

Joe:               

[11:20] Yeah, absolutely. And I would add one of the one of the other points that kind of stood out to me in the past couple days was one that you, you raised yesterday about the car sharing companies, the two largest ones having raised a combined $900 million combined. And it's interesting to see that, that that there's that much interest in car sharing, which I don't, I don't know that car sharing is as talked about as other segments of, of this mobility.

Scot:              

[11:53] Yeah. It's kind of under the radar.

Joe:               

[11:54]  So they, they, those companies go out of their way to kind of call themselves rental car companies, but they're essentially longterm rentals. So they're kind of like, I think their average is three or four day kind of rental kind of things. And so, so the two companies are Touro and get around. What's other, what's also interesting is you kind of see kind of to quote unquote godfathers in the auto space forming. So you've got Interactive Corp IAC. We were talking to the folks at honker and I didn't realize they had, they had led a very significant round for those guys, for example. So I see a, I see bought they have their own Angie's list. They started Expedia. So it's a very Diller's company and they have this whole suite of family home service type businesses and then in travel.

Joe:               

[12:41] And then they're also in the dating world. Oddly enough, this kind of smattering of Internet companies seems like they've got a directive to, to get really involved. And then the other big one is Softbank. So Softbank you know, just investing, they have like this $80 billion fund and they're investing a ton in the auto space. I know they're in a bunch of parking companies. They're in they're the ones that are funding get around. So, you know, there, there's two really big anchor investors there that are, seem to be driving a lot of that investment. Yeah. I think there's you know, just moving, moving appetite from Silicon Valley and even Wall Street, you know, towards, towards automotive and, you know, cause it's, you know, it's an industry that has been around for, you know, a hundred years and has only, it's only been in the last you know, five to 10 years. We're seeing this level of disruption. And then, you know, of course, the, the huge part of that is, is the used car market, which is 40 million annual sales. And then you have and that's just retail. Then you have a whole wholesale market that's 20 million each year. So it's, it's a, there's a lot of room for, for such investments in growth and quote unquote disruption.

Scot:              

[14:02] Yeah. I think, I think Amazon has shown us that, you know, digital technology can create such a better zero friction experience and then every time you do something in the car world you'd kind of, or you know, you encounter a lot of friction. So I tried to buy a car about a year ago and I had set it up where I was, I only had two hours cause I knew they would try to drag it out and it took like four hours and you know so and then, you know, no one ever gets really excited about, Gee, I'm going to go and get my car, you know, my oil changed or anything like that. So there's, there's a lot of opportunities to really increase the user experience around everything auto, which I think the VCC and they're pouring a bunch of money into that, just like Uber and lifted with taxis effectively Kinda saw that there was a really bad experience there that that could make much more 2019. Absolutely.

Joe:               

[14:52] And I think, you know, the, one of the biggest pain points automotive at least in the consumer buying process is that, is that financing process, you know, that it takes hours to get in there and find it to deal. And you know, one of the couple of the panels that we've had particularly the, there's one we had with Alex Mertz Zach with, with Ernst and young and he had three folks from the, the, you know, the, the finance world kind of go in and just speak about how, how they're changing the process. And I think that's probably, you know, the one area that it's pretty ripe for disruption as well.

Scot:              

[15:32] Yeah. Insight. Yeah. Yeah. You should. Yeah. It should be a lot faster. I don't know why it's so long. I think that it's a profit center and they, they've turned it into a pain point for the consumer to make profits. There's misalignment there and any company that flips that back the other way is it's going to be really making a lot of money. Yeah, absolutely.

Joe:               

[15:51] The another kind of the session that kind of stood out to me that I was able to get in today was the a one on the from Pala skier with the, with Nice Nielsen Auto Cloud. And she had some interesting interesting takes about, you know, she was sharing some data that I think for for Gidic for brand recognition that TV is the best form of advertising, but on the opposite in that axis you know, for actually decisions to buy that something like direct mail, digital retail or rate way higher than TV. So the key is not one or the other. It's kind of, you know, doing that, doing a blend of both. And I think that can be, you know, as she was saying that I kind of related that to what we were talking about with digital retail, that it is an Omnichannel approach, you know, a harmonized approach to, to to blending a lot of different methods based on how the consumer wants to interact with you.

Scot:              

17:01] Yeah. The, the challenge with TV is, you know, people that are kind of like 40 and younger, don't watch what they call kind of analog TV anymore. They're on Netflix and they're waiting for the next, you know, they're on, on Hulu and they're going to be on the Disney. It's going to get worse because we have a whole raft of new new subscription programs launching. So, you know, you're, you're almost kind of creating this challenge by just being on TV in that traditional OEM world because that's, that's, that's not the audience they all want. That kind of millennial kind of person are harder to find. And it'd be interesting to see. Yeah,

Joe:               

[17:33] Yeah, absolutely. I think you're at on point there. Half the shows. I, I still have a cable subscription, but I, you know, half the shows, I'll watch her either on Netflix or Amazon or I'll watch it on HBO

Scot:              

[17:45] Or something. Yeah. The only live TV is sports. Yeah, exactly. Certainly

Joe:               

[17:50] Watch, fair, fair. Share that with the, with NC state football starting up in about a month. So I'll be tuning back into the TV for that. Cool. anything else do you want? Huh. Well, you know, what, I, I think the only other other thing that stood out to me was just the diversity of, of companies here and different players in the market. I mean, you know, we're for 20 years we've had some iteration of what we call our, our used car week or in national remarketing conference where it's, it's, you know, for pretty much, you know, dealers, auto auction can signers and banks and, and it's interesting that to have a conference like this because in addition to those folks that they still come to this conference, you know, we get companies that are startups or investors or you know, people like the Nielsen's and Ernst and Young's and, you know, the spiffy is of the world that, you know, maybe are new to us, but they're, you know, getting into automotive and it's, it's really interesting to, to watch all these companies kind of come together.

Joe:               

[18:54] I mean comparing this conference to say, our fall event there, there's a lot of people here that haven't yet met each other. And so you get a lot of that. Oh, I met so and so at Auto Intel summit and you know, we're gonna work together. We're, you know, our fall event. It is, it's a lot more people who have, have known each other for years. So it's just, it's an interesting dynamic and it's Kinda fun to watch. Yeah. Yeah. One's more kind of like get business done today and the other one's more forward looking. Yeah, absolutely. It's the, you guys can balance the two of those. It's good to be able to provide two shows with a different flavor. Yup. And I should, I should add that our used car week conference is going to be November 11th through 15th at the Red Rock in Las Vegas. So thanks for the quick plug there allowing me. Yeah. Awesome. Cool. So start saving up those pennies for, for the  bandits.

Scot: 

[19:50] Cool. And then, so tomorrow the conference wraps and I'm sure you're looking forward to that. You can kinda go and take a couple of personal days. I'm sure these things are stressful. So tomorrow we've got Costco, there's a fireside chat about their car program, which is wildly popular. And then some interesting things around the finance side. And then a bunch of us get to repeat our sh are toxic. And so if, if, if folks missed the ones on Tuesday or had to choose between x and Y, you know, it can go to the other one tomorrow. So I think that's good though. We will be at my previous company, we ran several shows and you always get people to complain. You know, I, I couldn't make it to all the content, so I think it's good you didn't play that. Yeah, yeah. Yeah. Awesome. Well, thanks for joining us. I know you're, you're busy and look forward to seeing how things wrap up tomorrow.

Joe:               

[20:34] Well, Scott, thank you so much for being here and doing all these great shows and, and for your presentation the other day. Thanks.

Scot:              

[20:40] Thanks for having us.

EP012 - Electric Vehicle Analyst at EVAdoption, Loren McDonald

http://www.vehicle2.getspiffy.com

Episode 12 is an interview with Loren McDonald, Electric Vehicle Analyst at EVAdoption; recorded on July 1st, 2019. Loren and Scot dive deep into the world of EVs, including such topics as:

• The growth of total EV market share in the U.S., broken down by state.
• Exploring Loren’s CARMA EV adoption framework.
• Breaking down lithium-ion vs solid-state batteries, as well as their 7-year cost trajectory.
• Emerging companies like Rivian and Workhorse, who are pushing for EV usage in non-traditional segments.
• The expansion of EV charging infrastructure, including where charging stations are growing and where they’re still needed.
• Tracking federal EV tax credits as they begin to phase out.

Check out Loren’s work at EVAdoption.com, as well as his book Gas Station Zero! If you enjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.

This episode was produced and sound engineered by Jackson Balling and hosted by Scot Wingo.

 

Transcript:

Scot:

[00:56] Welcome to the Vehicle 2.0 Podcast. This is episode 12 and it's being recorded July 1st, 2019. Welcome back Vehicle 2.0 listeners. Uh, we're recording this here in early July. Hopefully this has given you some content for your July 4th travels. Uh, in this episode we have a real exciting treat for you. We're excited to welcome on the show, Loren McDonald. He's the author of the book "Gas Station Zero", editor and contributor to EVAdoption.com contributor to Clean Technica and an all around EV expert. Welcome to the Vehicle 2.0 Podcast. Loren!

Loren:

[01:31] Great. Thanks for having me, Scott. Really excited about the conversation today.

Scot:

[01:35] Yeah, me too. We've, uh, I've, I've been a f a Twitter follower and, and read a lot of your content. Um, you know, I think what I've found as I've dug into, I come from the ecommerce world and as I've dug into this world, uh, there's, there's not many people that actually have original content. There's a lot of republishing of the same kind of stuff. And, uh, what I love about your content is, you know, very originally sourced and in a lot of unique thinking there. Before we dig into that though, um, let's talk about your career path. What, what got you into this automotive motive space and writing on this topic?

Loren:

[02:10] Yeah. So I, I'm, you know, complete outsider, if you will, to the, the automotive and in EV world. I started my career in marketing and PR way, way back in 1984. So 35 years into kind of my, my marketing consulting career have been, uh, you know, CML marketing executive consultant at, uh, a variety of companies over the years. Mostly sort of BDB professional services. But the last a sort of 15, 20 years in the marketing technology space, um, and really kind of the last 15 years spend functioning as a, as a marketing evangelists are flying around the world. Uh, speaking at conferences, meeting with clients, doing a lot of writing and research and stuff. And ultimately that's, you know, kind of the transition to what I'm, I'm doing in the electric vehicle space. Uh, about five years ago I started a blog where I was writing about all things green.

Loren:

[03:04] The use the, the name Loren Green. If, uh, you, uh, older people on this, they'll get the, uh, the connection there with Lauren Green, the old a actor from the high chaparral. But, uh, what I was doing was writing about a bit of everything and sort of the green space, everything from how to reduce, uh, you know, packaging and, uh, increase recycling and reduce use of water. This was back in the days of, uh, the drought in California, solar power and electric vehicles. And what I quickly found was as I couldn't sort of be an expert on all of those topics and I decided, uh, to sort of pick electric vehicles and that was the one that I was sort of most intrigued by about how are we going to sort of solve this problem, right? Well, what is going to drive people to actually want to, uh, uh, you know, transition to electric vehicles.

Loren:

[03:58] So that sort of when I started about three years ago, uh, the Evie adoption site and as you mentioned also sort of riding for clean, technical, etc. And so really have, you know, taken my career as sort of a marketer and consultant and strategist and somebody focused on research and data and have tried to focus, uh, on that aspect of them solving the problem, using data of when, you know, when are consumers going to, uh, you know, adopt, uh, electric vehicles, uh, in a, in a really significant way. Well, and is this your first full time gig now or are kind of still a hobby? Wish it was Scott. I'm working towards that. Um, but, uh, it, it is something I do is sort of, uh, on the side, if you will. So a lot of, a lot, a lot of weekends, uh, uh, and, and, and evenings and things like that.

Loren:

[04:55] But, uh, you know, instead of, uh, instead of being out working in the yard or, or riding a bicycle or spending time with my wife on weekends, I'm uh, you know, chained to my laptop, writing articles and doing great research. But I have to ask, uh, do you drive an Evie? I do. At the moment we actually have two Tesla model essence. Uh, so, uh, got our first one, two and a half years ago and actually just picked up or actually it was delivered to our house. Uh, the second one last, last Sunday. And I've gone from the low end model s which had, uh, about, uh, 200 and a little under 210 miles of range to one that now is 335 miles of range. And so I'm really excited to, uh, put that to the test on road trips when we take our daughter back to us college in southern California later this summer. So a show, we'll, we'll, we'll dive into these and road trips a little bit later in this conversation. Yeah. Cool. Yeah, I'm a,

Scot:

[05:58] I had a model s or a pretty early on in 2012 and then a side graded to a model three, so, so also live in that as la UV lifestyle with you.

Loren:

[06:07] Nice, Nice.

Scot:

[06:09] Cool. We're here on the podcast. We have a framework for the Vehicle 2.0 framework where we talk about the four big changes coming to the auto industry. We talk about connected car changing ownership models, uh, autonomy, and then of course, uh, evs. So we want to spend the bulk of our time with you talking about evs. I thought it'd be good to kind of, you know, talk about kind of from a timeframe perspective, uh, where you see things today in the u s and then we can kind of expand from there.

Loren:

[06:36] Yeah. So we're, we're really quite, quite early for any, uh, sort of, uh, techie geeks. I, I refer to this, we're probably in the palm trio phase. I don't know. Scott, did you ever own a palm trio? Uh, I did. Yes, you did. Yes. And you'd know what I'm talking about, right? We're, we're in that phase of, of where primarily sort of early adopters and I, and I use technology and, and I'm a big fan of, of um, uh, the sort of that w what's commonly known as the technology adoption curve. This idea of how consumers, basically, with any sort of new technology product, they start off kind of the innovators, uh, you know, really, uh, only, uh, for geeks people that are willing, uh, and can afford to sort of pay more for products they want to, uh, own or drive, whatever the latest and greatest thing is.

Loren:

[07:29] And then it Kinda goes up ultimately into, um, what's called sort of the, you know, early majority, late majority then, then, then laggards. And in, in most markets in the u s and around the world, we're still in that sort of innovator phase of, you know, kind of under two and a half percent. Um, it obviously varies dramatically by market, but in, in the u s today across the u s worried about 2%, meaning, uh, two out of every 100 a new vehicles that are purchased across the US today are electric vehicles. And when I say electric, um, I'm including in that both what we call PHEV plug in hybrids. Those are things like the, the Chevrolet volts and the um, the Ford fusion energy where it has a small battery pack and you can uh, uh, drive on a what's typically anywhere from sort of 20 to have a little under 50 miles range on electric.

Loren:

[08:30] And then gas engine kicks, kicks in, but you can then recharge that battery, um, by, by plugging it in at home or the workplace or whatever. And then a, what we refer to as be evs, battery electric vehicles. And those are things as you and I talked about, the Tesla model s uh, and three, the Chevrolet Bolt, uh, many, many other factors that, uh, only have electric motors and battery packs is so fully electric. And, um, so again, where we are today in the u s is, uh, is about 2%, but then when you break the country down, it is sort of, we have a fascinating picture, Scott, in that it varies sort of dramatically by sort of state and market. So California finished 2018 at just under 8%, meaning, uh, you know, that almost, and we should hit and we actually hit the 10% in the last few months of, of 2010, we'll probably finish 2019 little under 10%.

Loren:

[09:31] But in essence, in California, across the entire state, one out of 10 of every new vehicles purchased, uh, is an electric car. And, uh, and most of them, in fact, about 40% of them are, are the Tesla model three these days. But then if you go to a state such as, you know, Oklahoma or Louisiana or whatever it is, it's like 0.2, 2%. And so literally what we have is we have this sort of huge dichotomy and chasm in the United States where you have California, where people are literally buying evs at a rate of 40 to 50 times that of people in, in sort of southern states. And so it's, it's sort of really fascinating. And then if you break that down even further in a, in a city like Palo Alto, which is obviously a sort of a wealthy higher income, high tech community, we're approaching 50%, literally one out of every two cars being purchased there are, are electric. Um, and now where I live in, in the bay area, in the suburbs, we're at about 15%, 20%. And so, you know, that's a long answer to your question Scott, but, but fundamentally, no, across the u s we are still really, really early. But if you look at sort of individual markets, we are sort of well down in the path of adoption.

Scot:

[10:53] Yeah. Very cool. Um, and then I've seen, I think I've seen Tesla or I can't remember who talked about it, but there's a certain definition of a car where, where they're one of the top sellers where, you know, I think they put the model three into a, uh, you know, a price range, and then it's like a four door, and then in that category of they're outselling the BMWs and Mercedes, the Honda's and the, you know, so another interesting slice where you're starting to see, you know, the, a fair amount of adoption within a pretty narrow definition.

Loren:

[11:22] Yeah. If you look at sort of the, that sort of luxury sedan market, if you will. So the, the, uh, as you mentioned, sort of, you know, the, the, the BMW three series, Audi a fours, uh, the Mercedes c class, uh, the, the, uh, Lexis, yes. I believes in that market and stuff. The Tesla model three is actually crushing it, right. In sort of that, uh, sort of, you know, 30 to 40, you know, 30 to thousand dollars, depending on what configuration you get of those different vehicles. The, you know, the model three is, uh, uh, is, is, you know, outselling all of those cars by a pretty significant way. And so what's, what's interesting about that, Scott, is that, well, we're seeing the most of the u s and Japanese automakers still sort of laggards on, on launching new models. The German car makers get this right because they're the ones that are actually seeing sort of direct competition from Tesla. I actually start to eat it into either end of the market share and I know we're going to sort of dive into that a little bit more, uh, in a bit. But that's sort of a, a fascinating sort of side effect of, of Tesla success.

Scot:

[12:33] Cool. And then, um, I know you've done a lot of really interesting research kind of putting on your, your consumer marketing hat about, you know, what I guess what's, what's driving adoption in, in areas like California and Palo Alto, and then, you know, what's slowing down adoption, what are, what are some of the consumer insights you've drawn from that?

Loren:

[12:53] Yeah. So, you know, fundamentally, again, what I came up with this framework, uh, about three years ago that I called Karma c a r m a the sort of as a way to kind of think about, um, what are the different factors that that will ultimately drive mass adoption of electric vehicles and, and you know, sort of the, the letter Stanford charging range and speed, affordability, range model availability and awareness and understanding and well, fundamentally that's why the Tesla is sort of, is, is doing so well and that it's, it's pretty much solved most all of these problems, right? So first and foremost, as we all know, consumers that, that are thinking about, uh, potentially. And in Evie you're considering it or just learning about it, there's sort of first, you know, common concern is his range and what we call range anxiety, right? Mo, most cars available in the u s today, especially with sort of the, you know, SUV as larger SUV have north of 400 miles of, of a range and the gas car right and sort of varies anywhere from about three 50 to almost sort of 500.

Loren:

[14:08] And so consumers have been trained that their car should go, you know, roughly three 50 to 400 miles on a, on a tank of gas. And so their expectation is, is that an electric car should sort of match that. Right. And so know that's where sort of, you know, again, Tesla has done really well in sort of reaching that sort of higher income market that has been able to afford their luxury cars with over 300 miles of range or in some cases a little bit under that. But, uh, and they're going to come out, uh, the, the rumor is by the end of this year with a model s that we'll actually have 400 miles of range. So they're sort of getting to that point of you, at least from a range perspective, consumers who can afford the electric cars will, will not be able to sort of use sort of the, the lack of range of an issue, but fundamentally w you know, range is sort of sort of that, that sort of first starting point.

Loren:

[15:06] In other words, if you're, if you're going into a car dealer and considering a car, that is sort of the sort of the first step that, that people have to get over. The second one, uh, is, is, uh, I think, um, you know, just sort of affordability, right? And again, the, the challenge today with, uh, sort of both sort of supply and demand of electric vehicles is, is because of the, the cost of the battery packs is still pretty significant and it tends to be about a 20 to 30% of the cost of the vehicle. And so the, the battery pack prices are coming down significantly, but there's still, you know, too high as a, as a percentage of the vehicle. And so when you're looking at comparable vehicles, so if you're looking at a particular car model that has both the gas, uh, uh, you know, motor and an electric motor, and there are several on on the market like that where you can actually get different sort of powertrains, it's often anywhere between five to $20,000 difference.

Loren:

[16:10] Right. And so in a case like that, it's sort of very apparent to someone that, you know, electric cars sort of cost significantly more. So we've got it, you know, yeah. Get the cost of them down. That's sort of the second, second big thing. And again, we're gonna, we're gonna get there probably in about seven years. That's what McKinsey and, and Bloomberg and many other, uh, research organizations have sort of predicting as that, that sort of cost comparison, that cost parity will come in probably around 2025, you know, plus or minus years that, you know, that's sort of the third piece of this is just making cars that, that people want. And so, as, as you know, Scott pickup trucks are really, really popular in, in, in the u s you know, the Ford, uh, F-150 is the top selling vehicle in the u s the sort of the top six vehicles sold every year in the u s are either SUV slash crossovers or pickups, right?

Loren:

[17:12] And there just aren't a, today there aren't any electric pickups and B, there aren't really any sort of affordable, uh, crossovers that can compete with something like a Toyota Rav four and stuff like that. And those are sort of the hot markets, right? And so, you know, we're just, there's not sort of competitive vehicles, um, uh, available. And then, you know, I would, uh, just sort of talk about kind of awareness and understanding, right? People just still don't even know what evs are and they think there's sort of something, uh, you know, kind of from the future and, and, um, and, and that's really where the neighborhood effect comes in, right? That's why they're doing so well in markets like California where people just like solar. There's been a lot of research around solar, right? You put solar on your house, your neighbor is more likely to go solar.

Loren:

[18:03] And that's what's happening in markets like California where people just see all the Teslas and electric cars running around and they become more comfortable. If it's okay for my, it's okay for me. And so we've just, you know, got to sort of do a better job of, of making them available and, and, and making people aware of them and that, that they actually really are a good fit for them. And then the last piece, um, is, is, is charging speed, right? I've talked to a lot of people, I've talked to everybody I know about, you know, when you will, uh, think you might be willing to go. And a lot of people will say, I will not consider electric car until it, it charges in the same amount of time that it takes me to refill my car. Right. Which is about five minutes. And we're, we're a long ways away from that. And so people are going to have to accept the charging is, is, is sort of very different, uh, than, uh, you know, that sort of refueling. Got It.

Scot:

[19:01] Cool. So the, um, so the main cost difference is the batteries and um, you said about seven years we should get to some kind of parody. Is that because battery production kind of gets to where it needs to be or, or, or what is the driving factor on that?

Loren:

[19:15] Yeah, it's a combination of things. Scott one, as you mentioned, it's just, it's like any sort of product, right? It's sort of volume, right? So right now, you know, there's, there's a last year worldwide, about 4 million evs were sold. And again, that's across both the, you know, the, the, the full battery electric vehicles and plug in hybrids and stuff. And so that's relatively speaking, you know, there was like 80 million vehicles sold last year in the world. That's sort of a small volume. And so the first part of it is, is just like, you know, smart phones or computers or refrigerators. Any other kind of product like that is, is that the price will come down when sort of the battery production sort of scales up. That's the first part of it. The second part of it is, is just um, improving, uh, manufacturing efficiencies, improving the actual, uh, makeup of, of, of the battery packs and selves.

Loren:

[20:10] We probably don't, don't have time to go sort of deep in into today, but there, there continues to be a lot of um, uh, improvements and developments in, in the actual sort of battery cells themselves. We're seeing in the, in the, in the future we're going to have something called solid state batteries, right, which were moved sort of the liquid in the batteries. And Long Story Short, Scott is that's going to probably double or triple in essence, the energy density of those batteries, which will a obviously, uh, mean that you can produce, you know, a three, 400 mile range battery for, you know, let's say half the cost that, that we, that we are today. So part of it is just sort of, it's, it's still a relatively new emerging technology, if you will. And it's just going to take, you know, five, seven, 10 years to kind of to get there.

Scot:

[21:00] Do you think lithium ion is going to be kind of the underlying technology that we bet on or do you think some other technology has a shot?

Loren:

[21:08] Yeah, so lithium ion is obviously the sort of the, the, the goto today, but, but again, I think we're, we're going to see a solid state battery sort of being the, uh, I think sort of the next wave and the next successor. Um, and, and again, it's just a, a sort of a variation if you will, on the lithium ion batteries that it removes that, um, sort of the, the liquid. And so the dendrites don't build up as much. And so basically, uh, you know, you just, you have sort of a higher, higher energy density. There are, there are other sort of technology's out there being, being talked about, but, but I think solid state seems to be the one that most people think is, is ultimately going to kind of be the, be the winner. And again, that's, that's probably, um, seven years, uh, seven to 10 years from being, um, like in electric cars that we would buy. Again from those perspective, it's just, it's a manufacturing and scale perspective that they already have sort of the technology. They just don't have the ability to mass produce those, those batteries yet.

Scot:

[22:17] Well, who's a, where could we learn more about solid state batteries? Is there like a certain company that's doing this or, or is it like out of a university?

Loren:

[22:26] Yeah, there, there's several of them. Uh, I've, I've, I had the, the pleasure to interview, uh, one CEO of one company called uh, uh, solid power out of Colorado. They were sort of spun out out of University of Boulder. Uh, Toyota is, is, is working on solid state battery. Dyson, the vacuum cleaner company for lack of a, a better term is walking on one. There are several other, are the universities and companies working on them as well. But those are some of the kind of the, the leaders, uh, Toyota, you know, is claiming that there are solid state battery next year. But, uh, I'm a little little bit dubious on that and think that, uh, showcasing it and actually putting it in a, in a car is, are two different things.

Scot:

[23:20] Cool. And then a on the lithium ion side. So Tesla built or, or as you know, has built a portion of the gigafactory in, uh, Nevada I believe. Uh, and then aren't they starting a factory in China as well? We'll those two factories kind of, um, you know, give them enough capacity to keep growing and, and kind of, you know, drive up the adoption at least on the Tesla side.

Loren:

[23:42] Yeah. So you're correct. So it's a, the, the, the gigafactory one like they call it, which is up outside of, of, of Reno, Nevada is a joint venture with, with Panasonic. And the challenge they've had there is just as you say, is they have not been able to actually keep up with demand. In fact, if you're familiar with some of the Tesla energy products, they have the, uh, the, the power wall and the power pack, which are sort of the, the backup battery storage, both for residential and commercial. And they basically had to take the production that was planned for those two products. And actually, but, uh, towards the model three and I'm actually, and so, yes. So the sort of the, the supply of battery packs continues to be sort of the, the biggest alums market. Um, and as you mentioned, China has actually completed the building of their, what they're calling gigafactory three in, in China insurance.

Loren:

[24:49] And, um, now they're actually, uh, working on, uh, building out the inside of the factory and installing equipment and stuff. They literally, it was sort of amazing that they built this, this factory in six months from literally a literally buying the property and, and getting up is pretty amazing. But those batteries are going to be battery packs and that factory are from everything we know going to be just for the Tesla model three in the model wise that will be sold in China. So that's probably not going to help solve any problem, uh, for, you know, for other, our other markets you up and, and the u s and stuff. And so that week does not go by when, uh, one of the, the, the OEMs, uh, you know, announces yet another, uh, either partnership or plan building a new battery factory. Several of them, uh, are, are being built down in the, in the south, in the US, uh, as an example. But, uh, yeah, so scaling up those, those battery factories, uh, is today literally the sort of the single biggest challenge to sort of growth of the market. They just can't keep up with supply or with demand. Excuse me.

Scot:

[26:03] Interesting. And then on the models, you talked about a pickup trucks and Teslas working on one. A lot of people are skeptical if, you know, given they're there, they're always announcing things and not delivering on time. Uh, but another one that we've been watching closely as Rivian, um, have you, you think they'll get to market first with their pickup truck?

Loren:

[26:21] They probably will. There was, and the, you know, there's not another company called work horse out of the Midwest that was been working on a, uh, on a, on a, uh, pickup truck. Uh, but they've been having some financial issues and stuff lately, so it's, uh, unclear what's going to happen with them. But yeah, ravion is a, is a really exciting company and Amazon and some other companies invested a $700 million into them. And, uh, as well as Ford has, is, is now invested in them. So they're at a really sort of exciting company to watch, unlike sort of Tesla and, and faraday future and some of the other sort of evs startups. They sort of remained in stealth mode for, for, for many, many years. And then finally came out and showed their sort of, uh, you know, concept, uh, versions of their pickup truck and an SUV and they're actually gorgeous and, and, uh, you know, really sort of amazing looking.

Loren:

[27:23] They've designed them literally from the ground up as evs. So there's like spots where you can put golf clubs through the side of the vehicle, uh, add on camping accessories to tap into the battery power. So they're, they're, they're very exciting. The problem with them is that, you know, they're basically, you know, 70 to a hundred thousand dollars pickup trucks. And, um, and so, well, their sort of dream pickup trucks, they're not gonna take the Midwest by storm, which is ultimately what what we need, right? So these are going to still be a lot of, you know, Silicon Valley and people on the coast who, who might've purchased a, you know, a Tesla or similar sort of electric luxury vehicle. Now getting excited about being the first one on their block to own a, a, a Caribbean electric pickup truck that, you know, that I think is, is actually going to be amazing, you know, three to 400 miles of range and just just, uh, amazing features.

Loren:

[28:22] But I think, you know, it's, it's, it's gonna prove that you can build an amazing pickup truck and that'll, that'll sort of pushed some of the other auto makers to sort of speed up it, but it's only going to take away sales from, you know, the very end highlight Ford Raptors, right, that are in that sort of 70, $80,000 range, thousand dollar range. In other words, it's not, it's not going to directly compete with that $40,000 kind of Ford F-150 or you know, or Chevrolet Silverado or whatever it is. So it's a, it's exciting. I expected to do really well with Amazon and Ford and others behind it. There doesn't seem to be any, uh, uh, you know, issues about will they survive. It's just that, how quickly can, can they scale and ultimately build pickups. An SUV is that maybe reach, you know, kind of below the luxury market.

Scot:

[29:22] Cool one. Um, uh, you talked about costs and for a while there we had a, a national subsidy. And then I think those have gone away, but there's still some state subsidies. We're, where are we on subsidies for, for enticing people to jump into the pond.

Loren:

[29:38] Yeah. So, so actually, no, so the, the federal electric vehicle tax credit is, we sort of commonly commonly refer to it is still, uh, it's still available. The way, the way it works is that, uh, it's based on each, uh, manufactures. So, uh, the, and, and the amount of the federal tax credit varies by the, the, the, the IRS basically has a, uh, a formula for it. But, uh, if the battery pack is of kind of a certain size, so it can be a plugin hybrid or a full electric, um, the maximum tax spread and get a $7,500, um, and then, uh, the, the smallest I think is about 1,750. I forget the exact amount, sort of, uh, for some, some vehicles and sort of everything in between. Again, sort of based on that sort of battery pack size. But once a, an auto maker sells 200,000 electric vehicles beginning from 2010, it starts kind of a, a complicated, uh, phase out, right?

Loren:

[30:49] So that get too into the weeds. But basically, uh, that tax credit phased out over, uh, nine quarters, if you will, and gets cut in half. And Tesla actually as of today, uh, their tax credit was cut, uh, uh, in half. Uh, and so it's down now to, or I think it's been cutting twice, half now. So it's down now to God, I forget the amount, but it's like 1,350 or something like that. Uh, I should know that, but it, but bakes look getting, it's been cut in half twice. And so this is the last, um, two quarters where you can get any kind of tax credit, uh, on Tesla models. Chevrolet also reached the General Motors also reached the $200,000, uh, threshold. Um, but they're, they did it a couple of quarters behind so you could still have several more quarters for their models and there's basically nobody else close. Scott Nissan and Ford are still about, uh, 80, 90,000 vehicles away and they don't have sort of any volume of EBS.

Loren:

[32:00] And so the tax credit in essence for the other 30 manufacturers or whatever is, is still sort of widely available and will be for many years. Um, but, uh, and then at, as you mentioned at the state level, by the way, I should, I should mention there, there's a lot of, uh, momentum to either by a certain people in oil companies that are to get rid of that federal tax credit and then by proponents of it to actually change it in an extended and, and change how it's actually calculated so that there isn't that 2000 sort of threshold. Um, but then as you mentioned, um, a lot of states actually have, uh, either rebates or tax credits. California for example, where I live has one, um, you Lotta utilities, uh, also have them. So like the Pacific gas and electric here in California, in southern California, Edison, et Cetera.

Loren:

[33:04] I'll have different ones, but it's Tenley tends to be about like $500. Uh, many states have tax credits of say, $2,500, or you know, a thousand, something like that. And then there are also many other sort of incentives or benefits such as access to the eight year v Lane, uh, and, and things like that. So there, there's still a lot of opportunities to in essence reduce your, your overall cost of that electric vehicle through, uh, through these various incentives. Very cool. And then, um, I've heard some states are considering actually, uh, you know, the opposite of subsidies, which would be increasing, uh, effectively a targeted tax, I guess, on, on evs. And I think their argument is we're losing all this tax income from the markup and gasoline. Have any states enacted that or are they just kind of chattering about it at this point?

Loren:

[33:56] Uh, it's, it's a little bit of both. There's, there's a lot of chatter. Uh, I think it was Illinois proposed like a thousand dollar registration fee. And then I think just like a week ago, it was, uh, it did not pass. Um, but there are some states that have past ones of like, it's like sort of double the registration of sort of a gas vehicle or they've added additional hundred or $200 and things like that. So yeah, you're, you're absolutely correct. There are, um, uh, some states that, um, are, are an acting anything from sort of small to fairly significant, uh, ways either sort of, typically it's sort of a registration fee. There's sort of increasing that, um, at basically it just as you said, as a way to say how do we recapture sort of the, the gas tax, uh, you know, w uh, gas taxes that we get to fund, uh, infrastructure, roads and bridges and things like that.

Loren:

[34:58] And that's actually a topic that, uh, I'm really gonna sort of dive into pretty significantly over the next couple of months, Scott. Cause it's, it's one that really fascinates me cause there are, there's about a half a dozen different models that people are talking about. Uh, but, but none have sort of emerged and this is not just the US and state issue. This is a global issue, right? Like nobody has actually figured out what is going to be kind of the most equitable, fair way and makes everybody happy to do this. And some of it sort of big brothery like people are talking about, they would track your mileage. Other people talk about you take your car in for an annual checkup and they'd look at the mileage thing, you'd be assessed a fee. Uh, there's electricity taxes, there's just flat registration, there's tire, you know, tire taxes. There's like all these things being floated and um, you know, none have, none have actually sort of emerged yet. And so meanwhile you're seeing just what you talked about Scott, which is states and sort of some states are just saying we don't know what the right answer is, but we're gonna, we're gonna Start, uh, taxing more. It's charging these fees because we know even though it's only a couple percent of, of the new vehicles that it's coming and we need to start, start generating that, that sort of revenue, recapturing that lost revenue in some way. Yeah. It's funny cause it seems so misaligned with, you know,

Scot:

[36:23] they'll try to be green and reduce carbon footprint. Everything did that you would create a disincentive for going EV. It just kind of,

Loren:

[36:30] yeah. And, and that's, yeah, that's a really good point in that, you know, depending on how you view of the world, right. Many people think that, that, that in fact, yes, we should look at sort of the, the actual impact that the internal combustion engine has, that we're actually not charging for it, right. Everything from, you know, sort of air pollution to, uh, carbon emissions and things like that. And so, you know, then that gets to a sort of a whole nother sort of complex, uh, way of sort of thinking about it. But, but you're right. And so you have this sort of like everything in the world, in the u s today, everything is sort of, you know, red and blue or black and white and this sort of, you know, it's hard to sort of bring people into the middle to find a, a, a good common and simple solution.

Scot:

[37:21] Cool. Um, last topic on Kinda like adoption rate. Um, where are we on charging infrastructure and is there, is there some metric we look at like chargers per population or just like the number of charges out there and any trends on that?

Loren:

[37:35] Great question. Yeah, I sorta, you know, to kind of back up for a little bit. Um, you know, the, the thing that, that people who don't have an Evie and, and as, as someone who's, who's on your second Evie, you absolutely understand this, right, is that, you know, when we think about refueling our gas or diesel powered car, we think about, we get in our car and we'd drive to a gas station or we stop off on the highway at a gas station going in, refuel, and then, you know, Kinda get back on the road or whatever it is with, with the electric cars, people have to sort of be re taught how to kind of think about charging. And that in a, for, in, in, in, in most parts of the world, in the u s you're looking at about 60% of people live in some form of a single family homes.

Loren:

[38:27] So they can install an Evie charging station in their house from anywhere from, you know, 500 and $1,500. Uh, which again is not necessarily a small number for a lot of people, but basically you drive in as you know, and you plug in your car at night just like you do your smart phone, you wake up in the morning and it's charged. Uh, maybe you drive to work and you, if you were lucky enough to have a, an employer that has charging stations that work and there are a lot of them out here in Silicon Valley. I know there's a lot down in places like Atlanta and probably where you are in Raleigh and stuff, but that's sort of another source, a target and Walmart have uh, hundreds and hundreds of charging stations that they've, they've built many of them, Tesla superchargers and other ones as well. Uh, Tesla has this what's called destination charging program where literally there are thousands of hotels and resorts around the world that have installed what's called the Tesla Wall charger.

Loren:

[39:27] So you can go stay at their hotel and just sort of plug in while you're sleeping at night there as well. The, the, the two biggest challenges, Scott, to kind of the charging infrastructure is solving the problem for renters, if you will. Or people that live in, you know, condos or, or high rise downtown in New York or something like that. Right? Where you can't just drive home and, and, and, and easily, easily plug in. So that's the first big a charging infrastructure challenge we have to solve. And that part of that's going to be solved by, uh, workplace. Part of it's going to be solved by the sort of, you know, urban charging centers and, and charging it at target and Walmart and places like that. Um, longer term sort of the apartment owners and managers and stuff, we're going to have to step up to the plate.

Loren:

[40:20] Most of them do not want to yet. They don't feel like it's their responsibility to be, to build out the sort of the refueling centers. But, so that's sort of the first part of kind of where we are is, is, you know, if you're a homeowner, it's, this is, this is a piece of cake. Uh, it's, it's those sort of non homeowner homeowners that we would kind of have to sort of focus on, on, on building out. The second piece of it is road trips, right? It's like most of us probably only do a couple of long road trips per year, but that is the biggest fear of most people in an, in, in buying an Evie, I'm going to Disneyland Disney world, going to see grandma two states away. It's a 500 mile trip, where am I going to starch? And, and Tesla understood that early on and so took the, you know, had the foresight to build out their Tesla supercharger, uh, network to sort of solve that problem.

Loren:

[41:19] And if you've ever been to sort of, you know, California and driven from like the bay area down to southern California, literally there's, you know, like where I live to down to la, there's like seven or eight different supercharger stations. You have plenty of options to sort of stop and charge that. So we have to sort of build that out. Electrify America, which is the, uh, the diesel gates, a subsidiary of Volkswagen, uh, that basically they've committed to $2 billion to building out, uh, the charging infrastructure in the u s both those sort of a road trip chargers as well as it apartments and in sort of a, an urban locations and stuff. And they're building out really pretty quickly there several other charging networks that are, uh, uh, ego and, and chargepoint et Cetera, that are sort of, uh, building out and, uh, you know, it, the thing that is sort of, we're, we're still not at that is that I believe is sort of the other, uh, automakers haven't really sort of stepped up to the plate, at least in the u s sort of help build that out.

Loren:

[42:28] And so I think that that's something that, that we need to need to see more of, uh, going forward. But to your question around the metrics, yeah. I, I tend to look at, uh, things like, uh, the number of, uh, uh, charging locations per number of electric vehicles. In other words, if you think about that, like fundamentally we need to scale the number of, of uh, electric charging stations in locations, uh, you know, at the same rate or ahead of the rate of, of people buying them. Um, and, uh, right now we're, you know, in most markets we have sort of a pretty, pretty good ratio. Um, there tends to be anywhere from about 15 to 30 electric vehicles per charging location and that seems to be okay. We probably need to get that down to closer to between 10 to 15. Uh, and then the second metric that I like to look at is the number of charging stations.

Loren:

[43:36] And this is the language we use in this industry is really bad, uh, because it's very different from gas stations, right? We say charging stations, which is actually means those sort of plugs the connections. Um, but a key metric to me in that area is, um, the number of those connections per location, right? And Teslas at almost 10, meaning if you go to their supercharger station, the average one has just under 10 connections. So 10 cars can plug in and charge at the same time. They have some that have as many as 40 connections. A lot of them now are, are 12, 12, 15, 20 et cetera. Um, but most of the other networks are only at two to four. So we've, we've got to build these sort of what I call sort of super centers, right? Where literally as, as the number of electric vehicles scale and they're driving down, you know, the east or mid West or the southern California, whatever it is. And you can have, you know, literally 50 cars stopping in at one location and, and all charging and being able to charge in 15, 20 minutes and get on their way.

Scot:

[44:46] Cool. Um, do you happen to know how many just total plugs there are in the United States?

Loren:

[44:52] There's about 65,000, what we call level two. Uh, that's like the level to sort of like what you plug in for your washing machine, that sort of, you know, two 20 capability and then, uh, what we call DC fast chargers, right? Those sort of superchargers that charge it really high rate. And you sort of combine those two together. We're at about 65,000 today in the u s um, but again, you know, Scott, if you think about that metric, that metric doesn't include the, you know, about 900,000 that are in people's homes. Yeah. Right. And so that's, you know, that's sort of the other, uh, other sort of, you know, key metric that almost everybody that buys an Evy obviously install some sort of a charger in their home and that that basically takes care for most people, uh, about 95% of their charging needs. Right. The only time you kind of, if you have a home that you can plug in the, that you have to go outside that is for those sort of either sort of mid or long road trips.

Scot:

[46:03] All right. So let's, uh, so that's a really good status of kind of where we are today and what's keeping people from adopting evs. Um, when you project forward, when are we going to cross that chasm and see evs become a much more material part of, of vehicles being sold?

Loren:

[46:19] Yep. Yep. Great question. So I use a, and thank you for using that sort of crossing the chasm. That's one of my favorite sort of terms and, and many, many of your listeners would probably feel are familiar with the book from many years ago, but the crossing the chasm refers to that, uh, technology adoption curve. I, I'm, I mentioned at the beginning of the podcast around, uh, when you basically go from early, early adopters and cross into that sort of early majority, which is 16%. So I like to be sort of very specific around, uh, the, the concept of when we will go mainstream. And so I use that 16% and I've, my prediction is that across the u s we will cross that 16% chasm, uh, in 2028. Um, but, um, uh, in California, uh, I believe it will be there in 2022. So just, uh, what three years away, cause we're, we'll probably be, as I mentioned at about 9%, uh, hopefully close to 10% by the end and of this year.

Loren:

[47:27] Uh, but what that also means, Scott, that when we hit that 16% across the US in 20, 28 or thereabout, it means that we might only be at, you know, 8% in Louisiana or something. So again, you know, and by that point, California might be, you know, 30, 35%. So we're still going to have sort of this, this, you know, in the u s and around the world is adoption is, is very, very market specific. And even cities specific, if you will, nursing, well, the, uh, California grid be able to handle that many evs. Yeah, great question. So that's, that's one of the things that a lot of people sort of talk about. One, you know, is the, is the during grid, right? The, with, with, uh, being used coal and natural gas, etc. And, and, and, and be, can grid actually handling. So, you know, a couple of things are happening in, in parallel, right?

Loren:

[48:24] And so the, in fact, the move to renewable energy solar and wind is actually happening at a faster rate than electric vehicle adoption in the u s so in other words, w w the grid is a getting cleaner faster than we're buying electric vehicles. And B, uh, the concept of sort of battery storage and micro grids is, is also sort of taken off. So as the cost of batteries declined for, for electric vehicles, they're also declining for that sort of what, what's called Keke storage demand. Right. And so you have this situation where, uh, you know, take, take a market where it's, you know, it's 100 degrees in the middle of the summer and everybody comes home at six, seven o'clock at night, fires up their air conditioner and stuff. And that's where we, we have, uh, you know, Brian House blackouts, et Cetera. Um, uh, and so the concept of peaker plants, so, uh, in particularly natural gas has been used, used for that in recent years.

Loren:

[49:31] So basically they fire those up to meet that specific, uh, demand rallies with sort of a battery storage. We can store all that excess, uh, solar and wind energy that's being created sort of during the day and throughout the day and those batteries and in literally a Nanosecond, those that battery storage can be tapped into sort of hit that sort of peak demand. So the reality is that at how we charge and when we charge is, is actually going to be monitored by abilities and you will like, I don't know Scott when you charge, but I charged my, my cars like at two o'clock in the morning, I get a lower rate. Nobody's, you know, nobody else's sort of using electricity at the time. And so it, it doesn't have that impact. Right? And so the utilities and software and AI will sort of manage when and how we charged the sort of make sure that not everybody's charging at the same time. And again, we'll have this sort of, uh, battery, uh, backups that are to manage that sort of peaks and stuff. So I'm not concerned at all about, um, the grid handling it. Technology will sort of solve that and sort of the growth of, of, of renewals. And battery storage. We'll, we'll take care of it.

Scot:

[50:52] Cool. Uh, I could go another hour, but I know we're kind of bumping up against time here and want to be, uh, you know, really appreciate you. You've given us a, an hour of your time. Um, any other last thoughts on, so I would love to talk about connected car and some of the ownership models and avs. Um, I kind of view, you know, Evie is kind of a, an underlying kind of platform for the, some of those things. It's just kind of kind of happen along with those. Um, or, or if you'd like to spend our last couple minutes talking about what's going on in other countries around evs. I'm, I'm open to either topic, whatever's interesting to you.

Loren:

[51:25] Yeah. I mean, I could, I could go another nother three hours, but, uh, yeah, I'll, I'll, I'll put quick, quickly on, on both of them. So, you know, globally, uh, you know, China is, uh, has the Chinese government is basically recognized electric vehicles as a business opportunity. So you look at, uh, many, many countries, France, UK, uh, uh, Netherlands, Norway, et Cetera. And they're looking at electric vehicles from kind of the, we need to reduce, uh, carbon emissions and climate change and air pollution and et cetera. And so we need to transition. China's sees that as well, but they also see this as perhaps the single biggest business opportunity potentially in the history of China. In other words, they see that, uh, that they can sort of dominate, like they've done in consumer electronics. And so most of the battery packs, uh, battery factories in the future are going to probably be the majority of them in China.

Loren:

[52:33] They see it as a massive opportunity. And so they're doing a lot of things to sort of take the lead there. And so we could, we could spend an hour on tariffs and all this sort of the politics of this, but, but China, uh, you know, many of our cars that, that you and I will purchase in, you know, seven to 10 years are probably going to be made in China. So that's sort of that, that sort of first part of it. Um, uh, but then sort of back on kind of the, uh, you know, connected and autonomous vehicles. I mean, obviously, uh, autonomous vehicles are primarily going to be powered by electric cars just because if you have, you have these sort of abs sort of, you know, running around the Robo taxis and stuff without a driver and you look at the maintenance costs and everything like that, it's sort of a natural natural with electric vehicles. So those two, uh, things I've obviously go go hand in hand. And so, um, yeah, the, you know, again, the, the uh, the, the intersection there is, is, is sort of a, uh, ideal. And, um, while we, you know, today we're seeing sort of a mix of those in the, in the next couple of years, we're going to see most all of the ads being made on, uh, electric platforms.

Scot:

[53:51] Awesome. Uh, and then, uh, last question, uh, you know, if folks want to find you online, where are the best places

Loren:

[54:00] so they can go check out a, the website and blog Evie, adoption.com just like it sounds. And follow me on Twitter at EVAdoptiontweet. Ah, those are probably the two best ways and they can a sign up for my email newsletter or a on the website as well. Would love to have them opt in.

Scot:

[54:19] Awesome. Well we really appreciate you taking time to be on the podcast. I jotted down 50 things I learned and hopefully everyone else learned a ton as well and uh, we'll have to get you back on. I know you're always doing research and things like that, so I'd love to get you back on the next time you update your models and get an update from you.

Loren:

[54:36] Great. Thanks. I really appreciate it. This was a lot of fun.

EP011 - Announcements, News, and AB 5

http://www.vehicle2.getspiffy.com

The Vehicle 2.0 Podcast is back for the summer! Episode 11 is a news-focused episode, recorded on June 25th, 2019. We start off with an exciting piece of Spiffy news, which kept us busy during a several-week-long break. From there, Scot rounds up an array of industry news and explores their impact on the Vehicle 2.0 realm, including:

• Introducing Spiffy’s Fleet Management as a Service (FMaaS) model.
• Fiat Chrysler following Ford’s lead with the Uconnect Market, a new in-vehicle commerce platform.
• California’s AB5 Bill and its impacts for Uber/Lyft employees.
• Hertz launching their own subscription service, Hertz My Car.
• Mercedes-Benz expanding their subscription program, amidst brands like Cadillac shutting theirs down.
• BMW speeds up their electric vehicle rollout schedule, plans for 25 EVs in 2023.
• GM CEO Mary Barra says the Cruise AV unit is committed to safety, rather than being first on the market.

If you enjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.

This episode was produced and sound engineered by Jackson Balling and hosted by Scot Wingo.

 

Transcript:

Scot: 

[00:56] Welcome to the Vehicle 2.0 Podcast! This is episode 11 and it's being recorded Tuesday, June 25th, 2019.

Scot:

[01:04] Welcome back vehicle 2.0 listeners. We had a little gap in episodes there and I apologize for that, but we are ready to get back on at least a biweekly schedule here with our little summer pre-summer break that we took. Um, we have a lot of exciting guests lined up in all of our favorite topics, so look forward to bringing you guys that soon. The main reason we took a gap was something that I want to start off with today. This is gonna be a news episode and we're going to kick it off with Spiffy's big news. So today we are actually announcing that we have raised over $10 million in funding led by Tribeca Ventures.

Scot:

[01:40] And then over the last year we've been stealthily opening fleet-oriented cities, so we're excited to announce that we're now in 11 markets. We have our first five markets, which were Raleigh, Charlotte, Atlanta, LA, and Dallas. And now we've added an additional six: New York City, Washington, DC, Seattle, Phoenix, Denver, and this week we opened Tampa. The last thing we're announcing today is our new service for fleets that we call "Fleet Management as a Service" (FMaaS). Working with fleets for the last couple of years, we realized they are looking for a comprehensive solution to all their challenges that integrates software services and a green orientation. So we'll be covering in fleeting. So services such as pre delivery inspections, re-conditioning and fueling, uh, and then through preventative maintenance, which is obviously wash and oil where we're known for, but adding a lot more capabilities there around tires and other PM activities. And then finally, the last cycle, last part of the lifecycle is d fleeting. So as these vehicles are leaving fleets, we can help there too. Uh, so reconditioning them, listening to them for auctions and defueling are some of the areas where we're helping fleets with. So excited to get that out there. That's been keeping us really busy here at Spiffy and we're glad to have that out in the news today.

Scot:

[02:59] With that, let's pivot away from spiffy and talk about the news in the industry. So as you know, the vehicle 2.0 framework has four components: connected car, changing ownership, electrification, and autonomy. So let's start with connected car, a lot of activities here. Since we last talked to you, Spiffy announced Ford had their announcement about connected car and they were in there with Amazon and Spiffy was included as well. So a lot going on in connected car, a Fiat Chrysler announced a new marketplace called you connect market that's part of their in vehicle marketplace platform.

Scot:

[03:39] Uh, and they talk about how customers can skip lines and save time by ordering food, beverages and reserve tables. They're launch partners are shell, Domino's, Park Whiz and Yelp. So it's gonna be interesting to see how, how some of these things are delivered. Should they be in the dashboards? Should they be in the OEMs APP or should they be separate apps with OEM connectivity? A lot activity, they're going on. A report came out in June, um, from the transparency market research firm, uh, about the connected car and they say that the connected car device market will surpass 20 billion by 2026. Uh, in there, uh, I definitely recommend that report. We're going to link to it in the show notes. A so in there it's pretty nursing. They talk about how by 2023, uh, OBD to dongles will essentially be, you know, uh, slowed down substantially as that's the kind of the point in time when they see the lines crossing where the automakers connected car capabilities will surpass kind of the what's called the retrofit devices that are out there changing ownership.

Scot:

[04:42] A lot of news this week. So, uh, here in 2019 we've enjoyed the IPO of both Lyft and Uber. And now there's just, yeah, there's a daily drumbeat of news coming out of those. Um, the, the one I wanted to talk about that's really interesting and a lot of people in industry are keeping their eye on is we have this larger gig economy. So not only do you have ride sharing like Uber and Lyft, uh, but all the food delivery, um, even like Amazon utilizes 10 99 drivers for delivering a bunch of its packages, uh, et cetera. So, so that, that Gig economy 10 99 is a really interesting part of the economy. Well, California has a law called in in the works called ab five. Uh, and this is actually passed kinda half of where it needs to go. And what it would do is it would dramatically tighten the rules around who can be treated as a 10 99 contractor versus a w two employee.

Scot:

[05:37] Uh, essentially when you read the rules, a Lyft, and Uber drivers would squarely be in the target here and they would move over from 10 99 contractors to w two. So this would subject them to all the normal employee rules, such as a 12 minutes, $12 an hour minimum wage, a daily and weekly over times, et cetera. Uh, what's this mean for Uber and Lyft? Well, one analyst, Ross Sandler at Barclays did a really kind of interesting back of the envelope here. So Uber has around 3.9 drivers globally. Half of those are our domestic and he estimates about six to 7% of those are effectively California trips. Lyft has 2 million drivers, all domestic. Um, so he believes they have about 15% of their businesses, California, so about double the exposure of Uber. Um, and then when you, when you kind of take the math, they're essentially, this would increase Uber's losses by 500 million, uh, annually.

Scot:

[06:33] Uh, 13% increase in Bern, uh, and then lifts 290 million or a 24% increase in Bern. So Wall Street's kind of keeping a very close eye on this and it's gonna be interesting to see how it plays out. Um, at the same time as these, since these guys have gone public there, they're working on their unit economics and trying to show investors that they're improving those. Uh, so for example, Lyft has been increasing. Uh, it's, uh, it's take rate, which means less pay for drivers. Uh, so for example, in the, uh, Xcel and black car segments, which are the larger vehicles and the limousine segment, um, they've decreased the pay out to drivers five to 6%. So there's definitely this showdown happening between the ride sharing companies and drivers, uh, and municipalities like California that we'll be keeping a really close island. Uh, another interesting, uh, segment of, uh, the changing ownership is subscriptions.

Scot:

[07:28] So these have had mixed results. So a lot of the OEMs came out with subscriptions. Um, Mercedes for example, this month announced they're actually expanding their program to add it to Atlanta. I believe that launched a national and now they're, they're adding more cities at the same time. Earlier this year, a Cadillac pulled back their offering. Well a new company threw their hat in the ring this month and that hurts. They launched my car, which is their subscription service. Uh, so if you go to hertz.com/hurts my car, uh, you can read all about it. They have two tiers to have $1,000 a month here and a $1,400 a month here. Uh, that's expensive. But when you read what's included is pretty interesting. So it includes insurance, all maintenance, uh, and there's really just kind of a month to month commitment and you get to swaps per month.

Scot:

[08:15] So the different tiers you have different classes of vehicles. So essentially tier one is kind of like that. Um, the, the one tier below kind of where you can walk up and get any fancy car. Um, and then the 1400 a month, uh, includes a lot of the hurts of select a vehicle choices. Um, this is targeted towards folks that, you know, um, have a lifestyle where, uh, you know, maybe most of the time they want to commute or tech car and then they want to go away for a weekend to the mountains and get an SUV or they want to go to the beach and get a convertible. So folks that are really kind of looking to swap out cars as part of their lifestyle and have everything taken care of them. So kind of that, that super convenience oriented consumer. Um, it's going to be, we'll keep an eye on the subscription programs and, and keep you posted on what's going on there.

Scot:

[09:02] Uh, let's move on to electrification. Uh, our next episode is going to be a heavy focus on electrification. So we want to save a bunch of time, uh, with you for that. Uh, but this week, uh, there was an announcement from BMW. So a BMW CEO essentially made a statement and said, by 2021, we will have doubled our sales and electrified vehicles compared to 2019. Uh, so they are heavily committed to electrification. Um, and by 2023, there'll be offering 25, uh, models there. Um, they announced they've sold 150,000 i3s in the US, which is the hatchback Evy. Uh, and then there are also investing in new plugin hybrid technology. Um, there's, there's a lot of interesting municipalities, uh, in Europe that are looking to have, um, you know, these, these areas that are called green zones where only I, uh, evs are allowed.

Scot:

[10:04] Um, so BMW is working on technology where the vehicle would detect that as entered one of these green zones. And, uh, essentially it'd be a plug in hybrid. It would only run the Evie as when it was in that part of the city. So a lot of really interesting things going on in the world. We're going to do a really big deep dive in the next episode. So that leaves autonomous vehicles where, uh, there's tons and tons of news. Um, so one of the first ones is kind of in the rumor category. So the, the information which is a, a publication focused on tech, um, it, it is reporting that they have heard. Uber is close to buying a company called Mighty Ai. A mighty AI is a Seattle based startup that helps autonomous vehicle developers trained their computer vision algorithms to identify objects better. Um, so you're seeing what I would call consolidation here, where, um, there's a lot of startups that do mapping and uh, you know, here on the show we've had folks that do the takeover driving type technology, et cetera.

Scot:

[11:06] Um, you're going to see, uh, the big guys, uh, Uber Waymo, apple, um, Jim's cruise division, uh, and then forward or kind of the five big a v providers. I think you're going to see them kind of start to grab some of these companies and make that technology proprietary in that genre. One of the biggest investors in this category is Softbank through their vision fund. Um, and they had a really interesting interview, um, where, uh, the managing partner that focuses on autonomy, Michael Ronen, uh, said that he doesn't think this is a really a winners take all, but it's kind of a quote unquote big boy's game. And by that he means the smaller independent companies are going to struggle because you know, the investments to play in this space are getting well north of 500 million to $1 billion would, which is certainly something that not many startups can stomach within, uh, within GMS Cruise Division.

Scot:

[12:04] Kind of some mixed news. In the last month, uh, on the negative side, they had this big demo, um, with uh, uh, one of their partners Honda where the CEO got into one of the prototype cruise vehicles. Um, and then about 20 minutes in, it was supposed to take this like little 30 minute ride around, I believe Las Vegas. Uh, and suddenly the car just kind of, uh, you know, freaked out. The software stopped. Uh, and then the, the backup driver had to take over and they couldn't really get the system restarted. And essentially they had to send a, another vehicle out there to pick them up the CEO and finish the demonstration. Having done many live demos in my life. This is a Murphy's law, always loves to jump in at the most inopportune time on these things. So, um, that was an example of, you know, probably what should have been a very gated experience kind of crashing.

Scot:

[12:54] Um, and obviously you wouldn't be, want to be in a car on the highway when that happened. Um, to that point, um, the, the CEO of GM Mary Barra, uh, talk, uh, to Axios, uh, I think in reaction to this and essentially said, um, that they have a very aggressive timeline to launch a self driving taxi. Uh, but they're not going to deploy the technology until it's safer than a human driver. So, um, they're, they're trying to start in San Francisco, uh, this year. But most folks realize that's probably not going to happen. Uh, another thing that we're starting to see is the OEMs are kind of partnering up with, with various folks if they don't have their own internal initiative. Um, so, uh, we also saw this month, uh, Renault in Nissan signed deals with Waymo where they're essentially going to be using the way mode technology as their Avy partner.

Scot:

[13:46] Uh, and then, uh, one of the, the, the remaining independents out there is called Aurora. That's a bunch of folks from Tesla and Google that got together. Um, that company is backed by sequoia has a, you know, it's kind of well over Unicorn status, so it's got like a $3 billion evaluation. Um, they signed a deal with Hyundai, Kia, and Fiat Chrysler. So you're starting to see the OEMs kind of line up with, with different folks and figure out who their partner is going to be so forward. Um, then, uh, they have their own initiative, uh, called Argo. Um, and they have locked up with Volkswagens. So Volkswagen kind of through their, their hand in with Ford. Um, they didn't really announce how much of the expenses would be shared. Um, but it is viewed that there, you know, the Volkswagen will probably invest in the Argo AI startup that is owning the, the Ford autonomy, um, and that a deal is imminent and should be announced as early as July. So appreciate you listening in this week.

Scot:

[14:55] So that's the quick news coming in from the future of vehicles with vehicle 2.0 next week, we are going to have a guest and do a deep dive into electrification and hope your summer's going well and safe driving!